Linda M Parsons
George Mason University
John M. Trussel
Pennsylvania State University at Harrisburg
Abstract: To examine the value of accounting reports for nonprofit organizations, accounting studies have primarily investigated the association between donations and accounting information. Prior studies have primarily explored the relation of donations to accounting measures of efficiency and found that more efficient organizations generate greater total contributions. A second stream of research in the nonprofit arena has examined the ability of accounting numbers to predict financial vulnerability of a charitable organization. A number of studies have found that certain financial stability measures are useful in predicting whether a charity will experience poor financial health. This study examines four indicators of financial stability to ascertain whether donors consider the stability of a not-for-profit firm when making a charitable donation decision. The evidence suggests that more financially stable organizations generate greater total contributions, and that stability measures provide donors with information beyond that contained in the efficiency ratios.
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