Implications of Being a Highly Rated Organization: Evidence from Four-Star Rated Nonprofits (original) (raw)
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We describe services that rate the performance of charitable organizations in the United States as a potential source of data for comparisons by donors and may be of interest and use to researchers. Such services have the potential to be considered as a surrogate for quality metrics in the nonprofit sector. The three services considered, The American Institute of Philanthropy, Charity Navigator, and the Wise Giving Alliance of the Better Business Bureau, create different rating schemes. Statistical analyses of a dataset comprised of charities in the Nonprofit Times Top 100 clarify points of similarity and difference among the services. We conclude with several cautions for researchers interested in pursuing further research in this area.
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How to measure performance in charitable organisations continues to excite interest among academics and practitioners. Despite the intellectual interest, little consensus has emerged as to what are the best measures of performance in charities. This is against the backdrop of an increased demand by donors and other stakeholders on charities to provide information on their performance. Building on prior studies, this paper examines the measures of performance in charities using a hybrid methodological approach which consists of 14 exploratory interviews and a quantitative survey of 105 CEOs / board of trustees of British large charities. Our results of factor analysis and internal reliability produced five broad measures of performance of charities: i) financial measures, ii) client satisfaction; iii) management effectiveness; iv) stakeholder involvement and v) benchmarking indicating that the overall performance of charity is best measured by a set of factors which reflect the multi...
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To complement contemporary nonprofit literature, which mainly offers theory-driven recommendations for measuring nonprofit effectiveness, performance, or related concepts; this article presents seven trade-offs for researchers and practitioners to consider before engaging in a nonprofit effectiveness measurement project. For each trade-off, we offer examples and suggestions to clarify the advantages and disadvantages of methodological choices that take various contextual elements into account. In particular, we address the differences between formative and reflective approaches, as well as the differences between unit of interest, unit of data collection, and unit of analysis. These topics require more in-depth attention in the nonprofit effectiveness literature to avoid misinterpretations and measurement biases. Finally, this article concludes with five avenues for further research to help address key challenges that remain in this research area.
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Journal of Accounting and Public Policy, 2009
Rating agencies presumably play the role of information intermediaries in the market for donations. These so-called watchdog organizations obtain and interpret accounting data and other information about charitable organizations and report ratings to help donors select among the many organizations soliciting contributions. In the age of the internet, information from Internal Revenue Service Form 990 returns prepared by tax-exempt organizations is more readily accessible than ever before. This study examines whether the zero-to four-star ratings provided by Charity Navigator have additional information content for donors. Charity Navigator was selected because its rating system relies almost exclusively on the 990 returns and presumably adds value by incorporating peer-group expectations for various ratios and by presenting straightforward and concise data. Using a random sample of 405 charities rated by Charity Navigator, our results suggest that rating changes do impact contributions. Positive rating changes were positively associated with an increase in contributions and organizations with a decline in rating were associated with decreased contributions. These effects were in addition to what would be predicted using an efficiency ratio commonly computed from Form 990 accounting data and other control variables.
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SSRN Electronic Journal, 2000
Charity giving continues to be an important aspect of the economic and social fabric of the United States. The number and total assets of nonprofits registered with the Internal Revenue Service (IRS) under the section 501(c)(3) of the tax code have grown significantly over the past decade. Given the significant share of donations in supporting the activities of nonprofits, it is important for donors to have a better understanding of their operations and governance. As the number of nonprofits with similar objectives increases, it becomes overly complicated for donors to make a choice that is consistent with their own purpose for giving. The goal of this paper is to develop an analytic framework for selecting a nonprofit from among competing alternatives. Specifically, we propose a process in which consultants or financial advisors help donors evaluate nonprofits using a set of financial and governance criteria to generate a ranked short list of alternatives for further evaluation. Donors differ in their criteria for evaluating the performance of nonprofits. The methodology we use allows donors to incorporate their preferences for specific criteria to the selection of a nonprofit in a consistent manner.
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Business Ethics: A European Review, 2015
How to measure performance in charitable organisations continues to excite interest among academics and practitioners. Despite the intellectual interest, little consensus has emerged as to what are the best measures of performance in charities. This is against the backdrop of an increased demand by donors and other stakeholders on charities to provide information on their performance. Building on prior studies, this paper examines the measures of performance in charities using a hybrid methodological approach which consists of 14 exploratory interviews and a quantitative survey of 105 CEOs / board of trustees of British large charities. Our results of factor analysis and internal reliability produced five broad measures of performance of charities: i) financial measures, ii) client satisfaction; iii) management effectiveness; iv) stakeholder involvement and v) benchmarking indicating that the overall performance of charity is best measured by a set of factors which reflect the multiple and diverse stakeholders associated with charities. Further analysis using the structural equation modelling (SEM) corroborates the results that non-financial measures such as management effectiveness, stakeholder involvement and benchmarking are important to the performance of charities.
Two Approaches to Nonprofit Financial Ratios and the Implications for Managerial Incentives.
Nonprofits compete in donation markets for resources and are expected to report on the financial stewardship of the organization. Without a clear comparative signal to differentiate organizations in this resource market, simple financial ratios have been used as proxy measures of relative organizational efficiency. Two conceptual models can be applied to the use of these ratios: first, as dichotomous conformance thresholds that identify poor performers who are unable to meet some minimum standard, or second, as directly comparable scales of performance where more optimized ratios can be used to distinguish the best performers. These two different conceptual models imply two different managerial approaches and potential organizational outcomes. This research assesses the extent to which nonprofits that are evaluated by an external evaluator appear to use the ratios as thresholds to pass or as scales to optimize.
mackcenter.org
This article reviews the literature on two critical aspects of nonprofit management, finance and evaluation. It is based on the assessment of 328 journal article abstracts derived from a total sample of 2013 articles located in the entire publication history of three major U.S. journals of nonprofit management. To survive and thrive in a changing political and economic environment, nonprofits have had to develop and sustain a diversified financial base. At the same time, the demands from funding sources and constituents for accountability have required nonprofits to develop systems to evaluate their service delivery and financial performance. The major themes include financial management, foundations and funders, fundraising, social enterprise, accountability, program evaluation and management information systems. The dual challenges and the rapid development of technology have pressured nonprofits to adopt mechanisms to integrate and evaluate service and financial and data. The review concludes with the beginnings of a research agenda related to revenue generation, resource allocation, and performance improvement.