Charitable ratings and financial reporting quality: Evidence from the human service sector
Journal of Public Budgeting, Accounting & Financial Management
ISSN: 1096-3367
Article publication date: 1 March 2013
Abstract
Prior research has shown that many donors utilize charity ratings for decisions and they give more to higher rated charities. Because ratings are partly or completely based on financial information, the financial reporting quality of highly rated charities is more critical to donors than that of the poorly rated ones. In this study, we examine whether the financial reporting quality of charities systematically varies with charitable ratings. Examining a sample of human service charities, we find that highly rated organizations are more likely to underreport fundraising expenses and overstate program ratios. Highly rated organizations appear to be exercising accounting discretion to achieve this desirable outcome. Collectively, our findings suggest that stakeholders should be cautious when they use the rating information.
Citation
Ling, Q. and Gordon Neely, D. (2013), "Charitable ratings and financial reporting quality: Evidence from the human service sector", Journal of Public Budgeting, Accounting & Financial Management, Vol. 25 No. 1, pp. 69-90. https://doi.org/10.1108/JPBAFM-25-01-2013-B004
Publisher
:Emerald Publishing Limited
Copyright © 2013 by PrAcademics Press