The Decision-Usefulness of Nonprofit Fundraising Ratios: Some Contrary Evidence

Prior research indicates that donors consider nonprofit organizations' historic fundraising ratios when making donation decisions. Theoretically, however, historic ratios are only pertinent to the donor's decision when they proxy for the organization's future marginal spending performance. In general, theory predicts average historic ratios will differ from future marginal ratios. Examining three large data sets, I find results consistent with theory. Incremental responses of donations to increases in fundraising expense are highly variable and poorly correlated with the average relations in a base year. While the cross-sectional response of donations to fundraising expense is generally linear over the relevant range, and average ratios are highly correlated between years, the low correlation of incremental to average ratios reduces the decision-usefulness of accounting data as currently provided.