Audit value and charitable organizations |
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Authors: | Karen Kitching |
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Institution: | aGeorge Mason University, 4400 University Drive, MSN 5F4, Fairfax, VA 22030, United States |
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Abstract: | I examine whether donors favor charities that use high quality auditors and whether the propensity to donate varies directly with audit quality. I find that audit quality affects donor decisions in the market for contributions. From a signaling perspective, charities benefit simply from engaging a higher quality auditor. From an information perspective, donors are more sensitive to changes in reported accounting information verified by a high quality auditor. I also find that, after conditioning on the charity’s reputation, donors are still willing to give more to charities aligned with a quality auditor, but the effect of audit quality choice dissipates with the size of the charity. Thus, a charity’s reputation and the choice of auditor are substitute mechanisms for signaling the credibility of financial information to donors. |
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Keywords: | Audit value Nonprofit accounting Charity Program ratio |
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