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Charity Ratings

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Journal of Economics & Management Strategy, 2016, vol. 25, issue 1, 195-219

Abstract: How do charitable donors respond to the third‐party ratings that signal the quality of charities? I investigate this question using a novel data set from Charity Navigator, which provides quality ratings for 5,400 charities. Because Charity Navigator prominently displays a charity's star rating which is assigned based on its overall rating, one can identify the causal impact of a one star increase in ratings on charitable contributions with a regression discontinuity framework that exploits the threshold values of the overall ratings. I find that in general, the third‐party ratings have a minor and often insignificant impact on charitable contributions received by charities. However, for relatively small charities, a higher rating leads to an increase in charitable contributions received. In particular, for these charities, I find that a one star increase in ratings is associated with a 19.5% increase in the amount of charitable contributions received. This result is robust under alternative model specifications and highlights the role of the third‐party ratings in not‐for‐profit markets.

Date: 2016
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Working Paper: Charity ratings (2013) Downloads
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Handle: RePEc:bla:jemstr:v:25:y:2016:i:1:p:195-219