The Effect of Investor Sentiment on Nonprofit Donations
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ORIGINAL PAPER
The Effect of Investor Sentiment on Nonprofit Donations Keval Amin1 · Erica Harris2 Received: 14 February 2020 / Accepted: 5 October 2020 © Springer Nature B.V. 2020
Abstract Prior work shows that capital market participants including investors, analysts, and managers are all impacted by the prevailing level of investor sentiment. We extend this line of work by investigating whether the effects of sentiment spill over into the nonprofit sector by affecting donors’ spending to support moral causes. While donors are driven by ethical, altruistic, and other utility-maximizing motives, it is unclear whether behavioral biases stemming from sentiment would influence donors’ decisions to give. We shed light on this issue using a large industry-diverse panel of over 115 thousand organization-years from 2008 to 2016. Results indicate that nonprofit organizations receive less in stock-based donations and more in cash-based donations during periods of high investor sentiment. Our inquiry separately considers cash and stock-based donations because we expect, and find, that market-related sentiment impacts these types of contributions differently. Moreover, we find that these effects are stronger for organizations with large donors, who are more closely tied to the capital markets, and therefore more susceptible to investor sentiment, as well as charitable organizations, consistent with “tug-at-the-heartstrings” type appeals inducing more emotional donation response. Taken together, the results suggest that market-wide investor sentiment impacts nonprofit organizations and the effects vary in the cross-section. Keywords Investor sentiment · Nonprofit organizations · Cash donations · Stock donations · Endowment effect
Introduction Philanthropy and charitable giving are often looked at as fulfilling individuals’ ethical obligation and moral duty to contribute to the welfare of others (e.g., Radley and Kennedy 1995; Cheung and Chan 2000; Manstead 2000; Warburton and Terry 2000; Oosterhof et al. 2009; Knowles et al. 2012; Gabriel 2017). Research has documented that altruism and other utility-maximizing factors contribute to donor intentions to support nonprofit organizations that serve missions that are important to them (e.g., Andreoni 1989, 1990; Rose-Ackerman 1996; Shehu et al. 2016). In turn, nonprofit organizations rely considerably on donations to finance their activities (e.g., Fischer et al. 2011; Okten and Weisbrod * Erica Harris [email protected] Keval Amin [email protected] 1
College of Business, Stony Brook University, 100 Nicolls Road, Stony Brook, NY 11794, USA
School of Accounting, Florida International University, 11200 SW 8th Street, Miami, FL 33199, USA
2
2000).1 Because donors, in general, are wealthier and have a higher income (Johnson and Rosenfeld 1991), they are likely to participate in and be impacted by capital market forces.2 However, to our best knowledge, no studies to date shed light on whether and how donors’ beliefs pertaining to the capital markets spillover to
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