Donors, distance, and the influence of accounting information

In this study, I test a practical intervention to a problematic occurrence in nonprofit organizations: the overemphasis of spending ratios, specifically the program ratio, when assessing nonprofit performance. Prior research indicates that donors place undue focus on not-for-profit (NFP) program ratios, which can result in suboptimal giving decisions because these ratios provide an incomplete measure of performance. To address this, regulators recommend that organizations provide explanatory information to aid donors in better understanding NFP performance. I present theoretical and experimental evidence to show that donations to an NFP with a low program ratio are higher if explanatory information is provided, and this effect is greater when the presentation of that information (concrete vs. abstract) is congruent with a donor’s distance (near vs. far). Additionally, I find that donors whose distance is far from an organization are more likely to be influenced by favorable desirability (goal-related) information than those whose distance is near. If donors are provided with unfavorable desirability information, they tend not to further penalize an NFP with a low program ratio if they are also provided with favorable feasibility (process-related) information (e.g., explanatory information). This study provides important insights regarding the communication of accounting information. Results suggest that the provision of explanatory information causes the negative impact of a low program ratio to decline, resulting in an increased willingness to donate to an NFP, especially when the explanatory information is congruent with a donor’s distance. While explanatory information does not change performance, it – along with favorable desirability information – can aid donors in better understanding the purpose and strategies of NFP spending.