An Experimental Examination of US Individual Donors’ Information Needs and Use

• Date: 01 August 2013
• Author: Wei Li,Pamela C. Smith,Evelyn A. McDowell
• Published date: 01 August 2013
• DOI: http://doi.org/10.1111/faam.12017

Financial Accountability & Management, 29(3), August 2013, 0267-4424

An Experimental Examination of US

Individual Donors’ Information

Needs and Use

EVELYN A. MCDOWELL,WEI LIANDPAMELA C. SMITH∗

Abstract: This paper adopts an internet-based experiment to investigate whether

and how individual donors use nonprofit organizations’ financial and nonfinancial

information when making their donation decisions. Using undergraduate students

in the United States (US) to proxy for individual donors, our results indicate

that individual donors are more likely to acquire nonfinancial information, such

as nonprofit organizations’ goals, outcomes, programs and missions, than financial

information. Donors integrate nonfinancial information into their decisions as their

actual donations are significantly correlated with such information. Our results also

indicate that while individual donors acquire financial efficiency measures, including

the program expense ratio and fundraising expense ratio, they do not seem to

integrate such information into their decisions as their actual donations are not

significantly correlated with the efficiency information. This study contributes to the

nonprofit literature and research domain focusing on charitable giving and donor

preferences.

Keywords: nonprofit organization, information search, donation, efficiency, program

expense ratio

INTRODUCTION

The purpose of this paper is to investigate the information needs and use of

individual donors in the United States (US) when making charitable donations

to US-based nonprofit entities. To our knowledge, this is the first internet-based

experiment used to investigate donor information needs and use for charity

∗The first author is Associate Professor, Department of Accounting, Rider University. The

second author is Assistant Professor, Department of Accounting, Kent State University and

Adjunct Professor, School of Economics and Management, Southwest Jiaotong University. The

third author is Professor, Department of Accounting, University of Texas at San Antonio.

Address for correspondence: Pamela C. Smith, Professor, Department of Accounting,

University of Texas at San Antonio, College of Business, One UTSA Circle, San Antonio,

TX 78249-0632, USA.

e-mail: pamela.smith@utsa.edu

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328 MCDOWELL, LI AND SMITH

financial and nonfinancial data. This study is relevant in today’s environment:

On the one hand, nonprofit organizations, both in the US and abroad, rely

heavily on individual donations. In the US, individual donations have increased

significantly from $110 billion in 1990 to $212 billion in 2010, representing

73% of the total amount contributed to nonprofit organizations (Giving USA

Foundation, 2011). In the United Kingdom (UK), there were over 28.4 million

donors with approximately £10.6 billion given to charity during 2010 (Charities

Aid Foundation, 2010). On the other hand, there is a continued concern

that information provided by charities may not always meet the needs and

use of individual donors. For example, Hyndman (1990 and 1991) finds that

information provided by charities in the UK does not always correspond to the

information needs of donors. Similarly, Hooper et al. (2008) find that charities

in New Zealand report financial data in order to meet the information needs of

government regulators, rather than contributors. As a result, there are calls for

more research on the information needs and use of individual donors – the most

valuable stakeholder for any charity around the world (Hyndman and McDon-

nell, 2009; Parsons, 2003; and Bowman, 2006). Our study attempts to answer this

call by investigating the information needs and use of US donors in a real time

manner, and thus to complement the understanding of whether the information

provided by US charities matches with the information needs of US donors.

Prior literature in the nonprofit arena has not fully used the advantages of

an internet-based experiment, which permits researchers to better understand

donor decision-making processing. Internet-based experiments permit tracking

of donors’ actual information needs and use in a natural setting, while prior

studies using surveys or paper-based experiments merely solicit donors’ self-

reported responses. It is possible that what donors say they would use in response

to survey questions may not necessarily be the same as what they would do in

an actual scenario. Thus, our use of an internet-based experiment provides a

clearer picture of donor decision-making processes in at least two ways: (1) it

mimics a real-world choice that donors face when deciding to donate among

organizations competing for the same charitable cause, and (2) it allows us

to examine donors’ needs and use of information through a two-step process:

what information they acquire and whether they integrate information into final

donations. In sum, the use of the internet-based experiment can answer the call

for research using alternative experimental techniques to address individual

donor decision-making processes (Parsons, 2003), and more insight into these

processes will also assist researchers to specify more accurate models of donor

giving.

Our results indicate that individual donors need and use nonfinancial

information of nonprofit organizations. Specifically, donors are more likely

to acquire nonfinancial information, such as nonprofit organizations’ goals,

outcomes, programs and missions, than financial information. They also

integrate nonfinancial information into their decisions as their actual donations

are significantly correlated with such information. Our results also indicate

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