Using Certifications to Signal Trustworthiness and Reduce the Perceived Risk of Donors – An Exploratory Investigation into the Impact of Charity Labels

ABSTRACT

Several accountability clubs and watchdogs issue charity labels for stimulating charitable giving, but research on the impact of such seals of approval built on certification systems is still narrow and contradictory. Based on signaling theory and theory of perceived risk, we develop a framework matching means of signaling trustworthiness by charities and of risk reducing by donors. Additionally, we present results of a study exploring the influence of the Austrian charity label “OSGS” on the donation behavior of 192 survey participants and investigate whether donors are more willing to support charities participating in this self-regulatory program. Our study provides insights into the benefits and constraints of voluntary accountability initiatives and enhances understanding of individuals’ motivations for giving. Findings indicate that expectations toward the OSGS are high and partly exaggerated. Nevertheless, we found that generally the OSGS is not crucial for charity choice but mainly beneficial for nonprofits not widely known.

KEYWORDS:

• Charitable giving
• charity choice
• charity labels
• donative behavior
• voluntary regulation

Introduction

Nonprofit organizations (NPOs) provide important services to society and can be regarded as a major economic and social force. In order to sustain the achievement of their specific mission, they typically rely on multiple resources including funds from charitable giving by individuals and institutions. Funders and other stakeholders often face uncertainty about the effectiveness and efficiency of the services provided by NPOs as the quality of their work is hard to observe and evaluate. For many donors it is difficult to assess whether their contributions make a difference and are used appropriately. Moreover, single scandals raised attention on mismanagement and governance issues, adversely affected public trust and generated negative reputational spill-overs for the charitable sector. In light of such problems and the distinct asymmetries of information, NPOs increasingly face accountability challenges and have responded to these in various ways (Anheier, 2014; Becker et al., 2020; Bekkers, 2010; Bhattacharya & Tinkelman, 2009; Farwell et al., 2019; Gugerty, 2009; Gugerty & Prakash, 2010a, 2010b; Tremblay-Boire & Prakash, 2017).

One accountability mechanism frequently employed by NPOs are voluntary regulatory programs or standard-setting clubs, which adopt codes of conduct and practices that provide an opportunity to convey a signal of quality, good governance, and trustworthiness to stakeholders (Bies, 2010; Gugerty, 2009; Gugerty & Prakash, 2010a, 2010b; Hao & Neely, 2019; Tremblay-Boire & Prakash, 2017). By conforming to standards of excellence and/or third-party auditing by an independent agency (that monitors NPOs with regard to the standards) donor confidence should be enhanced (Bekkers, 2010; Chen, 2009; Tremblay-Boire & Prakash, 2017). In addition to voluntary accountability programs, watchdog organizations (like the US Charity Navigator) rate fundraising organizations on financial health and their accountability efforts. Watchdogs make information about charities available in a convenient way and are thus supposed to provide clear signals to donors in order to help them make educated donation decisions (Cnaan et al., 2011; Szper & Prakash, 2011; Tremblay-Boire & Prakash, 2017). Watchdog ratings are typically involuntary, while self-regulatory programs rely on voluntary participation. Generally, accountability clubs can be interpreted as quality assurance programs for NPOs as they help their principals with obtaining information on the NPOs’ performance (Ortmann & Svítková, 2010; Szper & Prakash, 2011).

This paper investigates the impact of charity labels on donation decisions. As the literature shows no consistent terminology, we subsume all kinds of involuntary and self-regulatory certification or accreditation systems (i.e., charity ratings by watchdogs as well as seals of approval based on voluntary programs for NPOs collecting donations) under the term “charity label.” It is a common assumption that such “seals of good housekeeping” will positively influence donor decisions. If donors rely on such brand signals, they might be more inclined to donate to charities that joined such programs and/or are audited by third parties. However, so far, research on the benefits of charity labels shows inconclusive findings. It remains unclear, whether these signals do stimulate charitable giving or to what extent such labels influence donation decisions (for details see section 2.).

Though the impact of charity labels is still debated, it is vital to develop a better understanding of how donors respond to charity labels and whether these signals “pay off” as they are associated with fees and not inconsiderable effort or compliance costs. Besides, research is mostly focusing on the US-context. So far only little insight has been gained into the impact of such accountability mechanisms in European countries. Therefore, the aim of this paper is to shed light on the impact of a European charity label, namely the Austrian “OSGS” as a voluntary accountability program. By conducting an exploratory study examining the impact of the OSGS on the donation behavior of 192 participants in an online survey, we aim at developing a better understanding of the effect of this signal on individuals’ donation decisions. The following research questions guided our investigation:

• To what extent does the charity label OSGS influence donors’ decisions to donate?

• Are donors more inclined to support a charity participating in the OSGS program over charities without this seal of approval?

• What expectations do individual donors associate with the OSGS charity label?

• By which information sources do individual donors try to reduce their perceived risk of donating? Does the OSGS convey an effective quality signal that reduces the perceived risk of certain donors?

This paper makes two key contributions. First and theoretically, it outlines a framework matching the perspectives of both NPOs and donors. The framework links signaling theory (as NPOs employ several accountability mechanisms in order to signal trustworthiness to their stakeholders) and the theory of perceived risk as donors typically are uncertain whether their donations are appropriately used. Thus, they need credible information to reduce their perceived risk when making charitable contributions. Second, and empirically, our paper provides insights into the impact of the OSGS on donation decisions. While recognizing the exploratory nature of this study, to the best of our knowledge, this is the first paper analyzing for the Austrian context whether participation in the OSGS program influences individuals’ decisions to donate money.¹ Our framework and findings serve as an inspiration for some theoretical reflections on nonprofits’ donation management and accountability endeavors. In sum, our study is of both practical and theoretical significance as it provides insights into the benefits and constraints of selected accountability initiatives and enhances understanding of individuals’ motivations for giving to particular charities.

The paper proceeds as follows. In section 2 we review literature on charity labels and elaborate on signaling theory and theory of perceived risk. We then link these perspectives in a theoretical framework guiding our investigation. The methodology of our study is outlined in section 3. We present our empirical findings in section 4 and subsequently discuss them in section 5. Finally, section 6 concludes and offers avenues for further research.

Charity labels and charity choice – linking theories of signaling and perceived risk

Encouraging charitable support by charity labels

Quality labels, certification marks, third-party assessments, reviews, or ratings, and seals of approval have become a ubiquitous phenomenon and have proliferated because of consumers’ demands for e.g., safe, healthy, fair trade, or environmentally friendly products. Thus, many companies are flagging products displaying a specific label or logo that should ascertain quality attributes. Such labels are either issued by third parties or are the result of testing schemes maintained by manufacturers or retailers themselves. Quality labels can ease consumers’ decision-making processes, not least given our overloaded information society, as they function as cognitive signals designed to reduce the problem of information asymmetry (Moussa & Touzani, 2008; Willems et al., 2019; Yörük, 2016). Not only in the for-profit context, quality assurance for goods and services often relies on direct and indirect reputations provided by accreditation, rating systems, or self-regulatory programs. There are also various certification systems established by watchdogs as information intermediaries that rate charities according to some set of criteria or standards, as well as numerous programs relying on voluntary participation (for an overview see, e.g., Gugerty, 2009; Neundlinger & Stötzer, 2014; Silvergleid, 2003). Such accountability clubs can be understood as a kind of quality assurance program for NPOs as their principals also face challenges in obtaining information on the quality of nonprofits’ services (Ortmann & Svítková, 2010). Overall, watchdogs (which base their rating scores on publicly available information) and voluntary programs (which charities can deliberately join) are mechanisms for stakeholders to evaluate NPOs. They have in common that they can help donors making informed donation decisions, though the extent to which they influence such decisions is disputed (Tremblay-Boire & Prakash, 2017).

As mentioned above, we term all kinds of involuntary and self-regulatory certification, accreditation, or rating systems for fundraising NPOs as charity labels, which are mostly national in scope and prevalent in numerous countries (cf. Bies, 2010; Gugerty, 2009) and “emerged to help donors navigate the charitable universe” (Silvergleid, 2003, p. 11). Many certification bodies, which issue such signals are members of the International Committee on Fundraising Organizations (ICFO) as the international association of national charity monitoring organizations (ICFO, 2020). Charity labels share similar standards and verification mechanisms, but also show differences (e.g., concerning preconditions, or audit procedures). Table 1 gives an overview of selected charity labels issued by different standard setters and should exemplarily illustrate the international prevalence and relevance of such signals of trustworthiness for nonprofits trying to attain and sustain support.

Table 1. Examples of charity labels.

Charity label	Country (area of application)	Issuer
BBB Wise Giving Alliance Charity Seal	USA	Better Business Bureau (BBB) Wise Giving Alliance
CBF seal of approval	The Netherlands	Central Bureau on Fundraising (CBF)
Charity Intelligence Canada Rating	Canada	Charity Intelligence Canada (Ci)
Charity Navigator Rating	USA	Charity Navigator (CN)
CharityWatch Rating	USA	American Institute for Philanthropy (AIP)
DEA Spenden-Prüfzertifikat	Germany	Deutsche Evangelische Allianz (DEA)
Deutscher Spendenrat e.V. Spendenzertifikat	Germany	Deutscher Spendenrat e.V.
DZI-Spendensiegel	Germany	Deutsches Zentralinstitut für soziale Fragen
PHINEO Wirkt-Siegel	Germany	PHINEO gemeinnützige AG
Österreichisches Spendengütesiegel (OSGS)	Austria	6 Austrian umbrella organizations & Kammer der Steuerberater und Wirtschaftsprüfer (KSW)
SEA Ehrenkodex	Switzerland	Schweizerische Evangelische Allianz (SEA)
ZEWO-Gütesiegel	Switzerland	Schweizerische Zertifizierungsstelle für gemeinnützige Spenden sammelnde Organisationen (ZEWO)

Source: own elaboration

Most charity labels involve costs for NPOs. Next to certification fees charged by some issuers and auditors (external compliance costs), meeting the particular standards involves labor costs and other expenses, and the evaluation procedures require time (internal compliance costs). In general, the effort is frequently stated as a reason not to apply for a charity label (Bekkers, 2010; Gugerty, 2009). Nevertheless, the often costly and intensive procedures can also be regarded as advantageous as “it is unlikely that organizations that have something to hide will enter and successfully complete the evaluation procedure. Though it is impossible to check, it is likely that the costs associated with accreditation limit entry of ʽbad apples’ to the (…) fundraising market” (Bekkers, 2010, p. 255).

The Austrian charity label “Österreichisches Spendengütesiegel” (OSGS) is displayed in Figure 1. This seal of approval was created in 2001 by a cooperation of six nonprofit umbrella organizations with the Austrian chamber of tax consultants and public accountants which developed the standards. NPOs willing to comply with the program may apply for the label. A tax consultant or public accountant then evaluates the NPO. The seal is issued if the NPO meets the standards (related to compliance with accounting standards, internal control systems, statutory use of donations, economy and efficiency, financial policy, human resource management, and integrity of advertising (for details see OSGS, 2020d). The accreditation is valid for 1 year. Afterwards, the NPO has to be assessed again in order to retain the label. Besides time and labor costs, NPOs have to pay (comparatively low) fees for the OSGS: an annual fixed fee for advertising as well as a variable fee, depending on fundraising income. Additionally, costs involve the individual fees for the evaluation procedure by the assigned tax consultant or external accountant (OSGS, 2020b, 2020c). In May 2021, 273 NPOs were accredited fundraising organizations (OSGS, 2021). The 2019 donation report by the Austrian fundraising association records that 74% of the 100 largest Austrian fundraising organizations bear the OSGS. Besides, it states that 50% of individual donors and 22% of business companies supporting charities attach value to the OSGS (Fundraising Verband Austria, 2019).

Figure 1. The Austrian charity label “OSGS” (Source: OSGS, 2020a).

Signaling theory – the perspective of nonprofit organizations

Signaling theory originates in the work by Spence (1973) discussing labor market signaling among college graduates. Yet, signaling is a phenomenon applicable to any relationships characterized by information asymmetries (Morris, 1987), including the nonprofit sector (Gugerty, 2009; Gugerty & Prakash, 2010b; Haski-Leventhal & Foot, 2016). Always a sender or insider (an individual or an organization) that has some private information has to choose whether and how to communicate (signal) this information to outsiders. The receiver (like donors or the public) who lacks information must choose how to interpret the signal (Connelly et al., 2011; Haski-Leventhal & Foot, 2016; Spence, 2002). In response to agency dilemmas, NPOs typically strive to signal their own quality and reduce the level of information asymmetry between them and their stakeholders. Donors would eventually make a decision and/or provide feedback to the signaler, possibly through his/her decision to donate a certain amount of money (Gugerty & Prakash, 2010b; Hao & Neely, 2019; Haski-Leventhal & Foot, 2016).

NPOs rely on philanthropic support to achieve their missions, and this support builds on beliefs in their trustworthiness, legitimacy, and accountability, which means, in its most fundamental sense, “to be answerable to some party, for some expected performance” (Bies, 2010, p. 1061). Accountability is necessary to promote public trust (Sloan, 2009) which depends mostly on the relationships between individuals and NPOs (Becker et al., 2020), supporters’ familiarity with charities, and on transparency (Farwell et al., 2019). Many NPOs demonstrate accountability by providing information online, issuing annual reports and financial statements. Nevertheless, donors may question their trustworthiness (Cnaan et al., 2011; Farwell et al., 2019).

In order to face fundraising and trust problems, many NPOs join accountability clubs and/or seek accreditation to signal their worthiness (Bekkers, 2010; Hao & Neely, 2019). This means that, for differentiating themselves from less reputable NPOs (the “bad apples”) and to address accountability concerns proactively, many well-managed charities (the “good apples”) establish or join mechanisms that supply informational signals about their activities and commitment toward good governance. Voluntary accountability initiatives are an important category of such signaling institutions for creating and conveying a signal of quality, “virtue” and trustworthiness to external stakeholders. Thereby, NPOs primarily hope to obtain a stable or increased resource supply and attract new donors (Gugerty, 2009; Gugerty & Prakash, 2010b; Tremblay-Boire & Prakash, 2017). Thus, participation in accountability clubs can be regarded as a strategy to manage accountability relationships (Gugerty & Prakash, 2010b) and can give members a branding benefit, though NPOs that free-ride could benefit, too (Bekkers, 2010).

To create suitable signaling mechanisms, NPOs must identify which signals will be perceived as credible by stakeholders. The credibility of signals of accountability programs is related to the costs of compliance (stringency of standards and fees) and the strength of verification systems (including disclosure, monitoring, and sanctions). However, there might still be problems with low signal visibility or clarity (Connelly et al., 2011; Gugerty, 2009; Gugerty & Prakash, 2010b; Haski-Leventhal & Foot, 2016).

NPOs have to weigh the costs of accreditation against the (expected) benefits. Thus, the costs of signaling must be outweighed by benefits like increased visibility or receiving more resources from donors (Gugerty, 2009; Hao & Neely, 2019; Haski-Leventhal & Foot, 2016). Research indicates that donations generally are related to NPOs’ marketing and fundraising activities (Haski-Leventhal & Foot, 2016), that donors are willing to reward charities for credible signals like seals of approval (Bekkers, 2010), that rating agencies are valuable quality signals (Harris & Neely, 2016), and that accredited NPOs achieve comparatively higher levels of trust as such signals reduce risk in exchange relations (Becker et al., 2020).

Still, the value of signals might be overstated as individuals “often do not pay attention to (…) labels that voluntary programs participants use as a signaling device. (…) The multiplicity of such labels often leads to informational overload. Further, the variability in the quality of such labels invites accusation of ʽgreenwashing’.” (Tremblay-Boire & Prakash, 2017, p. 624). Besides, small NPOs might be unable to raise the costs associated with accreditation (Bekkers, 2010). Accordingly, the study by Hao and Neely (2019) found that a majority of NPOs accredited by the BBB and able to easily bear signaling costs are larger, more profitable organizations that have higher visibility in the charitable marketplace and are more likely to engage professional fundraisers.

Theory of perceived risk – the perspective of donors

Based on the theory of perceived risk (Bauer, 1967; Cox, 1967), consumers purchase goods and services with some degree of uncertainty that is experienced in the form of perceived risk. “In a choice situation, risk can be interpreted in terms of possible loss. The loss can be in psycho/social terms or in functional/economic terms, or in some combination of both forms of loss” (Taylor, 1974, p. 54). Perceived risk is a fundamental aspect of consumer behavior (Taylor, 1974; Zhang et al., 2012) and donation decision processes can be investigated from such a perspective (Hibbert & Horne, 1997; Yavas et al., 1993). If the perceived risk exceeds a person’s tolerance limit, the individual will tend to reduce the risk (Bauer, 1967; Cox, 1967; Sheth & Parvatiyar, 1995). The reduction of risk might focus either on limiting the possible negative consequences or on reducing the uncertainty about the likelihood that the consequences could come true. This involves the complete avoidance of a behavior (e.g., not donating at all) as well as seeking and processing information for reducing perceived risk (Gemünden, 1985; Sheth & Parvatiyar, 1995). In the context of charitable giving, many (prospective) donors will search for information and become highly involved in the decision process in an attempt to reduce their perceived risk. Information search can rely on internal and external sources. Internal sources relate to a person’s memories and are accessed as a first step. When an individual has extensive knowledge and experience it is less likely that s/he will invest much time and effort in searching for information from external sources (i.e., different environmental stimuli). Especially when a small donation is made it has limited consequences for donors and, therefore, they mostly are not willing to spend much time on information search before making their decision (Hibbert & Horne, 1997). External sources’ usefulness depends on the quantity and quality of information about a charity a donor can access at a low cost (McDougle & Handy, 2014). Studies show that information gathered through personal recommendations and positive word-of-mouth (WOM) communication can influence giving decisions (Li & McDougle, 2017). Relying on one’s own social networks to provide assessments about a charity’s work is a low-cost option and thus often appealing (Tremblay-Boire & Prakash, 2017). In addition, signals like the OSGS are external stimuli that may reduce the perceived risk of supporters.

Most donors are interested in NPOs’ mission, effectiveness, and efficiency of services provided, financial ratios, overhead, and fundraising costs. As donors typically are not recipients of services and do not know beneficiaries, they have to rely on their personal impressions of the trustworthiness of NPOs (Bekkers, 2010; Bhattacharya & Tinkelman, 2009; Silvergleid, 2003). Attitudes related to the work and use of funds by a charity as well as feelings of obligation to give are guiding donation decisions. Besides, many people have favorite charities working for a cause that is particularly dear to them (Hibbert & Horne, 1997). Research shows that individual giving is influenced by both self-interested and other-interested motivations including altruism, social norms, and situational factors (Hibbert & Horne, 1997; Tremblay-Boire & Prakash, 2017). Also, donors’ present or former donation behavior affects future giving intentions (Yavas et al., 1993). An extensive literature review by Bekkers and Wiepking (2011) investigating why people donate money identified eight mechanisms that drive charitable giving: awareness of need, solicitation, costs and benefits, altruism, reputation, psychological benefits, values, and efficacy. Efficacy seems relevant for our study as it refers to donors’ perceptions that their contributions make a difference to the cause they would like to support. These are related to perceptions of overhead and fundraising costs as well as to confidence in charities. We would like to stress that only few studies investigate factors that impact donors’ charity choice in central Europe, while most studies focus on the US, UK, or Canada. However, the transferability of their findings to continental European countries is limited. Austria, for example, is characterized by a special political context and welfare-mix that is very different from conditions in the USA or UK (Neumayr & Handy, 2019).

Donors need reliable information, but relevant information is often scattered and laborious to obtain (Chen, 2009). Many individuals want to have some assurance that their donations are used appropriately and would like to differentiate between credible charities and incapable ones. However, donating is usually not a major financial decision for most people and searching for information is costly. The search costs involved in thoroughly gathering and evaluating information about NPOs are often regarded as too high and some individuals lack the ability to interpret this information. When a charity provides services abroad, possibilities to acquire information about its performance are especially limited. If a charity is located in their vicinity, donors could observe its work and may obtain information from family or friends. Besides, donors cannot be sure that information received from NPOs is credible and accurate. Charity labels can help make well-informed decisions. Individuals may specifically look for their brand value and might be more inclined to donate to charities that joined such accountability clubs (Bekkers, 2010; Sloan, 2009; Szper & Prakash, 2011; Tremblay-Boire & Prakash, 2017).

However, the literature shows mixed findings on charity labels’ significance to influence donation behavior. Tremblay-Boire and Prakash (2017) find that information via voluntary programs and charity ratings does not influence the willingness to donate, but that the NPO’s location of operations is significant. Their study suggests “that donors do not necessarily seek assurance and information via new instruments such as voluntary programs or charity watchdogs, but possibly through personal scrutiny, word-of-mouth, and their local networks” (Tremblay-Boire & Prakash, 2017, p. 643). This finding is in large part in line with the examination by Szper and Prakash (2011). Also, Li and McDougle (2017) state that donors of money prefer to personally verify the performance of NPOs and that WOM recommendations and past experiences significantly impact donation decisions as well as future intentions of giving. Silvergleid’s (2003) investigation of the effects of US watchdog ratings on private donations likewise shows no significant linkage. Similarly, Cnaan et al. (2011) state that the majority of American donors do not consult the online information provided by watchdogs.

On the contrary, the results of Gordon et al.’s study (Gordon et al., 2009) indicate that changes in Charity Navigator ratings do impact giving (positive rating changes increased contributions, declining ratings were associated with decreased donations). Harris and Neely (2016) also found evidence indicating that donors incorporate rating information into their giving decisions. Using a large sample of US NPOs, they found that rated charities have significantly higher direct donations and that multiple ratings involve higher donation levels. Based on a laboratory experiment, Brown et al. (2017) likewise confirmed that third-party assessments do impact charity choice. Bekkers (2010) concludes that the use of the Dutch seal of approval can give NPOs a competitive advantage as it works as a reputation signaling system reducing search costs for donors. Sloan (2009) shows that positive ratings by the BBB Wise Giving Alliance have a significant effect on contributions received by charities (though “did not pass” ratings have not). The research by Chen (2009, 2016) found, too, that meeting BBB standards has a positive effect on giving behavior and is associated with higher levels of public financial support. He thus recommends participating in assessment programs to increase fundraising revenues.

Interestingly, Yörük (2016) found that for small charities, Charity Navigator ratings have a considerable impact on the extent of donations received, although in general he found the effect of ratings on (large) charities to be statistically insignificant. This finding again points to the issue that accreditation might not be equally beneficial to all types of NPOs and donors. If NPOs operate in distant countries or work for abstract causes, the problem of asymmetry of information is more pronounced than for local NPOs. Concerning supporters, donors that make high contributions are expected to show more interest in charity labels as they have a larger amount of money at stake (Bekkers, 2010). However, some donors might assess accountability programs as “charity washes” and thus their willingness to donate (more) to certified NPOs might not be increased by such signals (Tremblay-Boire & Prakash, 2017).

Framework of signaling trustworthiness and reducing perceived risk

Figure 2 displays our theoretical framework, which combines the perspective of charities and the ideas of signaling theory, and the perspective of (potential) donors and the propositions of the theory of perceived risk. Donors face asymmetrical information problems and can be regarded as principals who support the activities of a nonprofit as an agent, which typically has more information about the use of the resources received (cf. Cnaan et al., 2011; Farwell et al., 2019; Gugerty, 2009; Gugerty & Prakash, 2010b; Sloan, 2009). In practice, there are various means to reduce information asymmetries between NPOs and their stakeholders. Depending on the national context, the regulation of NPOs is often based on a combination of legal requirements (i.e., compulsory accountability), independent monitoring by third parties (incl. watchdogs) and voluntary accountability initiatives. Concerning the latter NPOs have several possibilities to signal trustworthiness, good governance, ethical behavior, and/or performance, for example, submitting to nonprofit governance codes of conduct, issuing performance or sustainability reports or joining accountability clubs like the OSGS. In the same sense donors can consult various (formal and informal) information sources for reducing their (individually distinct) perceived risk of making charitable contributions. Of course, both the NPOs’ motivations for establishing or joining accountability programs and donors’ efforts of seeking assurance about the credibility of charities are influenced by their individual determinants (i.e., organizational and managerial characteristics, as well as donors’ personal characteristics and motivations). In the case of self-regulation, the accreditation entity or third-party agency acts as the principal (on behalf of NPOs’ stakeholders) and applies mechanisms to hold NPOs (as agents) to account (Bies, 2010). Thus, nonprofit accountability endeavors are complicated by several principal–agent relations. Finally, yet importantly, it has to be taken into account that signaling and reducing risk imply (transaction) costs. Thus, transaction cost theory complements our theoretical framework.

Figure 2. Theoretical framework of ensuring charitable support (Source: own elaboration).

The framework’s key idea is that an accountability mechanism is only then worth the effort if there is a good match of a means of signaling and a donor’s perception of this signal’s ability to reduce his/her perceived risk. Literature often focuses either on numerous signaling mechanisms or on donors’ motivations to support NPOs with money, time, or in-kind donations. We believe that the success or persuasiveness of a charity label is not only linked to the extent of how far its standards are perceived as stringent, but also closely linked with the subjective perception of individuals’ perceived risk of donating (which can range from zero to high intensity). Particular certification standards might be widely regarded as best practice, but that does not necessarily imply that stakeholders are actually interested in these standards, or that accreditation increases the reputation or fundraising income of NPOs. Only if a donor perceives some risk and regards that as a problem (as people have different risk appetite), s/he might be inclined to reduce that risk by specific information sources. Bearing a charity label only seems recommendable if the targeted donors are interested in such seals of approval, perceive at least some degree of risk they feel a need to reduce, and show responsiveness to these signals.

Research design and methods

This explorative study is based on the framework outlined above and intends to investigate whether the OSGS achieves the aim of sending out trustworthy signals and enables donors to make (more) informed (and thus perceived as less risky) donation decisions from their point of view. Due to the complexity of the framework, we focused in a first step on the perspective of donors. Of course, the perspective of NPOs is equally important when empirically investigating our framework and needs to be explored in complementary future studies. First, we focus on the OSGS’s influence on individuals’ donation behavior and conducted a survey comprising three sections: donation behavior; associations, expectations, and attitudes toward the OSGS; demographic items. We derived several items for donation behavior and demographic aspects from Neumayr and Schober (2009) and Fundraising Verband Austria (2018). The OSGS-related items were based on a preliminary study in Austria by Mittermayr and Stötzer (2019).

To broaden the scope of the analysis, we did not only survey persons with an interest in NPOs, but also tried to include individuals who might not have had much experience with NPOs so far. To identify people who are familiar with NPOs, we drew on the Annual Donation Report 2018 of the Austrian Fundraising Association (Fundraising Verband Austria, 2018). This report lists the 100 organizations with the highest donation volume in Austria. In March 2019, we sent an e-mail to all these NPOs asking to share the link to our online survey on their Facebook account and/or website. Seven organizations ensured to support our study. These NPOs are (in alphabetical order): “Blindenverband W – NÖ – Bgld” (rank 47 in the donation report´s list of the 100 Austrian charities with the highest amount of collected donations); “Kinderkrebshilfe OÖ” (rank 75); “NPH Österreich” (rank 84); “SEI SO FREI – Bruder in Not” (rank 32); “Verein Kinderhilfswerk” (rank 53); “Verein Projekt Integrationshaus” (rank 91), and “Wings for Life” (rank 39). Because of a varying volume of received donations as well as different areas of activity, the listed NPOs seem to be suitable for our research design.

In order to reach persons who might not be interconnected with NPOs so far, we additionally included students in our study. The students were informed about the survey at the website of one of the authors’ university institute as well as by posting the link to the online survey on several Facebook sites and groups of this university (Johannes Kepler University Linz). In addition, an invitation to participate in the study was sent to students of two Bachelor courses.

The standardized questionnaire comprised 23 questions and was pre-tested before the survey started at the end of March 2019. Until May 2019, 192 persons participated in our survey. Table 2 summarizes demographic information about the respondents who gave details on their personal data. Respondents were, on average, 30 years old. The youngest participant was 19 years old and the oldest one was 65 years. Fifty-six percent stated to be single, while 42.4% were married or living in a partnership (n = 184). The majority of respondents were female (73.5%, n = 185), member of a religious community (65.8%; n = 184) and had (rather) a strong trust in NPOs in general (71.9%, n = 185). Regarding the level of education, 51.4% owned a university degree and 46.5% completed the university-entrance diploma (n = 185).

Table 2. Demographic characteristics of the respondents.

Items	n	Indicators/findings	Percent of respondents
Marital status	184	Single	56.0%
		Married	16.3%
		In partnership	26.1%
		Divorced	1.6%
Level of education	185	University	51.4%
		University-entrance diploma	46.5%
		Completed apprenticeship	1.6%
		No school graduation	0.5%
Gender	185	26.5% male; 73.5% female
Member of a religious community	184	yes = 65.8%; no = 34.2%
Age (in years)	184	mean = 30.23; SD = 8.90; min = 19; max = 65
Trust in NPOs in general	185	mean^a = 2.85; SD = 0.751

n = number of respondents; mean =arithmetic average; SD = standard deviation

^ascale: 4 = strong trust; 3 = rather strong trust; 2 = little trust; 1 = no trust

Source: own elaboration

We quantitatively analyzed our empirical results using the software SPSS. The following section presents the main findings obtained through this online survey.

Empirical findings

Information on reported donation behavior of our respondents is summarized in Table 3. A majority donates up to 50 euros per year (56.3%, n = 174) to one or two NPOs (69.7%, n = 165). 27.4% of the respondents did not donate in the last 12 months or generally do not donate at all. Twenty-two percent of survey participants made one donation, 17.7% two donations, and 32.8% more than two donations in the last 12 months (n = 186). The intended purpose of the donation(s) varies; e.g., 49.1% donate for social affairs, 36.4% for children and adolescents, 32.9% for national emergency aid, and 26% for animal protection concerns (n = 173).

Table 3. Donation behavior of survey respondents (part 1/2).

Items	n	Indicators	Percent of respondents
Number of organizations to which donations were made in the last 12 months	165	One organization	38.8%
		Two organizations	30.9%
		Three organizations	18.2%
		Four organizations	6.1%
		Five or more organizations	6.1%
Amount of the donation(s) per year	174	0–50 Euro	56.3%
		51–100 Euro	13.8%
		101–150 Euro	10.3%
		151–200 Euro	4.6%
		201–250 Euro	6.3%
		251–300 Euro	1.7%
		More than 300 Euro	6.9%
Donation frequency in the last 12 months	186	One donation	22.0%
		Two donations	17.7%
		More than two donations	32.8%
		No donations in the last 12 months	18.8%
		No donations in general	8.6%
Intended purpose of the donation(s) (multiple choices possible)	173	Social affairs (e.g., care for homeless people, handicapped people, etc.)	49.1%
		Children and adolescents	36.4%
		National emergency aid (e.g., fire department, etc.)	32.9%
		Animal protection	26.0%
		Emergency aid abroad	21.4%
		Health (e.g., hospitals, medical research, etc.)	20.8%
		Environmental protection	19.7%
		Religious communities	12.7%
		Development aid	12.7%
		Culture (e.g., theaters, museums, orchestras, etc.)	12.7%
		Education and science (e.g., schools, universities, etc.)	6.9%
		Sports and leisure activities	6.4%
		Representation of interests (e.g., labor union, professional association, etc.)	6.4%
		Others	5.2%

Source: own elaboration

When asked for their reasons for making donations, respondents answered as displayed in Table 4. The answers to this question show that only 7.1% stated that the circumstance that an NPO holds the OSGS is a motive to donate to this organization. In contrast, 60.6% donate because of solidarity, 42.9% because of the assurance that their donation will reach its intended purpose, and 41.2% because of a personal connection with the particular NPO (n = 170).

Table 4. Donation behavior of survey respondents (part 2/2).

Donation behavior items	n	Indicators	Percent of respondents
Reasons why respondents donate (multiple choices possible)	170	Solidarity	60.6%
		Assurance that your donation will reach its intended purpose	42.9%
		Organization with a personal connection (e.g., own situation, voluntary work, etc.)	41.2%
		Organization is sympathetic	32.9%
		Because I can afford it	31.2%
		Because I was asked to make a donation	28.8%
		Individual fates are particularly close to my heart	27.6%
		Convincing call for help	18.2%
		Organization provides help in Austria	11.2%
		Tax deductibility	8.2%
		Organization with OSGS	7.1%
		Appreciation	5.3%
		Others	4.1%
Aspects, respondents pay attention to when choosing a NPO for a donation (multiple choices possible)	170	Organization with personal connection (e.g., own situation, voluntary work, etc.)	46.5%
		Dedication of donations to concrete projects	45.3%
		Background information about the organization is available	44.7%
		Information about the impact of the donation is available	38.8%
		Image of the organization	30.6%
		Dedicated use of funds by the organization	24.7%
		Austrian organization	23.5%
		Degree of brand awareness regarding the organization	21.8%
		Payment options for the donation (e.g., online or with credit card)	15.9%
		Organization uses the provided resources economically	13.5%
		Organization with OSGS	11.2%
		International scope of the organization’s activities	8.2%
		Anonymity of the donation	7.1%
		Size of the organization	3.5%
		Others	2.9%
Sources respondents use to inform themselves* (multiple choices possible)	160	NPO-Website	76.9%
		Search engines (e.g., Google, Bing, etc.)	56.9%
		Friends	39.4%
		Media coverage	37.5%
		Family	27.5%
		Annual report of the organization	26.9%
		Acquaintances	24.4%
		Colleagues	18.8%
		OSGS-Website	6.9%
		Others	3.8%

* Before making a donation, 84% of the respondents inform themselves about the NPO (n = 169).

Source: own elaboration

In addition, we asked for the main aspects our respondents pay attention to when selecting a nonprofit for a donation. In this regard, 11.2% (n = 170) stated the OSGS. In comparison, a much higher proportion of respondents report to pay attention to, e.g., personal connections with a particular NPO (46.5%) or the dedication of donations to concrete projects (45.3%). Concerning sources used to inform oneself about a charity before making donations, most participants (84%) rely on several sources headed by NPO-websites (76.9%) and search engines (56.9%). Besides, personal communication channels via friends, family, acquaintances, or colleagues are important, too, next to media coverage and charities’ annual reports. The OSGS-website is an also-ran mentioned as an information source by 6.9% (n = 160).

When turning to the OSGS in more depth, it became apparent that 93 out of 185 respondents (50.3%) stated to know this charity label. Several questions analyzed the associations with the OSGS, personal attitudes toward it, and the expectations toward charities with an OSGS certificate. In addition, we explored whether these 93 persons consider the OSGS when they are selecting a charity to support. Table 5 summarizes our findings in this regard. Hence, more than half of the 93 respondents associate verified quality (63.4%), donation-security (59.1%), or a controlling body (50.5%) with the OSGS. More than two-thirds expect that charities bearing the OSGS are willing to be audited (71%) and to disclose information about donation processes (67.7%). When selecting a NPO they want to donate to 37% of the 93 respondents report that they do not consider the OSGS, but interestingly, for another 35.9% the OSGS is a relevant criterion when making donations to unknown NPOs. Regarding personal attitudes toward the OSGS, the answers show that the perceptions of this label are mostly positive. A majority trusts the OSGS (83.4%, n = 90), expresses the opinion that it is important that the OSGS exists (80.4%, n = 92) and that this label is helpful for making donation decisions (54.9%, n = 93). 65.6% (n = 93) state that they trust NPOs labeled with the OSGS more than NPOs not sending this quality signal. However, less than half of the respondents (40.7%, n = 91) say that they donate more money to charities bearing the OSGS.

Table 5. Associations, expectations, and attitudes concerning the OSGS.

Items	n	Indicators	Brand awareness of the OSGS (n = 185)
			50.3% of the respondents know the OSGS	49.7% of the respondents do not know the OSGS
Associations with the OSGS (multiple choices possible)	93	Verified quality	63.4%	n/a
		Donation-security	59.1%
		Controlling body (regular audit)	50.5%
		Transparency	44.1%
		Auditing standards	40.9%
		Donations reach the purpose communicated by the organization	30.1%
		Shows how donations are used	20.4%
		Economic use of funds	20.4%
		Not a lot	9.7%
		Nothing	2.2%
		Others	2.2%
Expectations toward organizations with the OSGS (multiple choices possible)	93	Willingness to be audited	71.0%	n/a
		Disclosure of the donation process	67.7%
		Dedicated use of donated funds	64.5%
		Transparency	64.5%
		Disclosure of the administration costs	61.3%
		Disclosure of the fundraising costs (Funding costs)	57.0%
		Credibility	54.8%
		Lean administration	31.2%
		Good reputation	22.6%
		None	1.1%
The presence of the OSGS is taken into account when selecting an organization	92	Yes, OSGS is taken into account.	27.2%	n/a
		OSGS is only taken into account for unknown organizations.	35.9%
		No, OSGS is not taken into account.	37.0%
Personal attitude toward the OSGS	92	It is important that the OSGS exists.	mean = 3.03; SD = 0.831	n/a
	93	I trust NPO with OSGS more than NPO without OSGS.	mean = 2.78; SD = 0.976
	93	The OSGS is helpful for making donation decisions.	mean = 2.58; SD = 0.982
	91	I donate more money to organizations with OSGS.	mean = 2.30; SD = 1.090
	90	Respondents trust the OSGS.	mean = 3.18; SD = 0.728

Mean = arithmetic average (scale: 1 = does not apply at all, 2 = does rather not apply, 3 = largely applies, 4 = fully applies); SD = standard deviation

Source: own elaboration

Discussion

The findings highlight donors’ common wish that their contributions assuredly reach the intended beneficiaries. To this end, their charity choice is often determined by background information about the nonprofit(s) and the impact of donations. The OSGS label’s positioning and self-proclaimed aim that “your donation reliably is well received” (translation by the authors of “Damit Ihre Spende sicher ankommt”; OSGS, 2020e) corresponds with this widespread desire. However, it seems necessary to caution against exaggerated expectations. Numerous charity labels pledge good governance as well as efficiency and effectiveness though their standards, monitoring procedures, and test criteria are differing and variably comprehensive. Anyhow, and in spite of tough regulation, best intentions, and sometimes magniloquent promises, no charity label can prevent mismanagement, fraud, or scandals. Besides, the predominant focus of the OSGS and other labels is on financial statement analysis. Therefore, we agree with Gordon et al. (2009) stating that “no one has found a way to measure and report on effectiveness and quality of services. If nothing else, user education is warranted so that donors will take a closer look at both a charity’s mission and its services to judge themselves whether the particular approaches employed are likely to achieve the intended objectives” (p. 482). Notwithstanding that financial ratios do not necessarily correlate with quality and effectiveness, joining voluntary accountability programs might still induce improvements of NPOs’ management, governance, or fundraising practices as a result of the application and review process. Bekkers (2010) and Chen (2009) also voiced that accreditation might increase the quality of internal organization, accounting practices, transparency, and accountability of NPOs (though such changes are difficult to measure).

The degree of brand awareness – half of the respondents know the OSGS – seems rather low or at least expandable. One reason might be the fact that the OSGS is a comparatively young charity label. Nevertheless, the low brand awareness and the marginal use of the OSGS-website by donors when gathering information indicates that there is need for action in terms of more publicity about the OSGS, its standards, and its members. Although the OSGS issuers have extended their scope of communication channels in the recent past by social media activities (especially those using Facebook and YouTube), these marketing activities seem developable, especially when taking into account the high share of young survey participants. Even though accredited NPOs are allowed to advertise the OSGS, a consistent and autonomous marketing campaign by the OSGS issuers could foster public awareness for the label.

We interpret the finding that 84% of the respondents gather information about NPOs before making charitable contributions as a sign that a majority perceives a certain degree of risk they would like to reduce. They reported to prefer information sources aside from the OSGS, namely the charity’s website, search engines, and WOM communication provided by their local networks. This result is in line with some previous studies (e.g., Cnaan et al., 2011; Tremblay-Boire & Prakash, 2017) and confirms the findings of Willems et al. (2019) that ratings are consulted as complementary information. Even so, the high percentage of respondents that are unaware of the OSGS’s existence seems critical as Bourassa and Stang (2016) show for the Canadian context that knowledge moderates the relation between donation amounts, perceived transparency/accountability, and trust. When 50% of donors are unaware of the OSGS’s existence; then, the label’s signaling power might be rather low. Yet, our respondents mainly reported positive associations with the OSGS, such as transparency, frequent assessments, or constant monitoring. Admittedly, OSGS standards on transparency could still be improved compared to other labels (like, e.g., the Swiss ZEWO-Gütesiegel). This would possibly meet the self-expressed expectations of many donors who declared that information regarding overhead and fundraising expenses is important to them.

Of those 93 respondents who know the OSGS only 25 persons reported that they pay attention to the accreditation status of a charity when making donation decisions (i.e. 13% of all survey participants). Thus, the OSGS does not seem to significantly drive giving patterns and generally does not convey a comprehensive signaling effect worth mentioning. This result definitely does not substantiate the claim by the Austrian fundraising association in its donation report stating that 50% of the individual donors rely on the OSGS for charity choice (cf. section 2.1.). This finding raises doubt whether the costs involved in joining this accountability club are actually worth it when many donors are neither familiar with the label nor regard it as relevant for their giving decisions. Nevertheless, and somehow surprisingly, a majority asserted to have trust in the OSGS whose existence is regarded as important. This gives rise to the assumption that the label might have indirect positive effects as a confidence-building measure many people would like to rely on and which makes them feel comfortable. Thus, there seems to be potential for the development of this charity label to become a more established signal.

One of our main findings is that the OSGS can support donors making informed charitable decisions better when they have no or little knowledge about particular charities. This might be especially relevant for small(er) NPOs as their degree of brand awareness typically is lower than that of large, often well-known NPOs. Thus, our empirical results correspond with the finding of Yörük (2016) that donors respond more to quality signals of relatively small charities. With regard to our theoretical framework, donors’ characteristics must take into account their familiarity with NPOs and former donative behavior. Individuals without giving experience and knowledge about a charity obviously experience higher uncertainty and therefore might perceive greater risk. Hence, they seem to be more responsive to signals of trustworthiness. This finding implies important implications for practitioners in the area of communications and setting priorities. When designing new marketing campaigns, NPOs should pay attention to segmenting their stakeholder groups and develop targeted campaigns for different groups of (actual and potential) donors. Next to the recommendation of building higher awareness and knowledge about the charity label in general, small and not widely known NPOs could actively advertise the OSGS to potential donors not familiar with their organization in order to attain new supporters (often urgently needed). However, it seems to be a hardly resolvable dilemma that those charities that could benefit the most of the joining the OSGS program often do not have sufficient resources for bearing (internal and external) compliance costs as well as costs for positive branding and operating targeted fundraising campaigns.

Conclusions

The empirical results and previous research show that donors’ inclination to make contributions is influenced by several factors. Based on our study, we can reason that the OSGS is not or only to a minor extent a relevant criterion for charity choice, at least according to the self-reported perceptions of the survey participants. Our findings do not indicate that donors might be more inclined to support charities that joined the OSGS program over charities not bearing this label. Accordingly, NPOs have to reflect whether the costs for this accreditation are actually worthwhile or whether these resources would be better devoted to mission-related activities.

The respondents positively associated assured quality of charities, reliable donating, frequent assessments, and transparency with the OSGS. But as outlined before, these mostly high expectations are partly exaggerated and not accomplishable. However, the OSGS generally seems to be an effective confidence-building measure as a high percentage of respondents reveal that they trust this label and think that its existence is necessary. As this overall positive image of the OSGS is so far not extensively reflected in its relevance for donation decisions, this leads us to the assumption that the charity label represents in large part a confidence-building measure that might have an indirect impact on fundraising success as it primarily serves as a superficial feel-good-signal for reducing inner conflicts or doubts of (prospective) donors. Apart from that, individual donors mostly rely on other information sources when deciding which charity to support. To reduce their perceived risk of donating 84% of the respondents gathered information about NPOs before making charitable contributions. Preferred information sources include charities’ websites, information obtained through search engines, WOM (via friends, family members, acquaintances, and colleagues), and media reports.

We summarize our findings by concluding that bearing a charity label is not crucial for well-known NPOs, but can be a beneficial confidence-building measure for charities not widely known as the OSGS then often serves as a signal of trustworthiness toward donors who are not familiar with the respective NPO. We assume that when a donor has no knowledge about a charity, this uncertainty increases his/her perceived risk and seemingly his/her responsiveness to signals like the OSGS. Therefore, NPOs are recommended to consciously target their communication activities (including their self-presentation as a label-bearer) to prospective donors that do not know their organization and are risk-averse. In these cases, and in line with our framework, a match of signaling trustworthiness and donors’ responsiveness to a seal of approval for reducing their perceived risk seems to be most likely.

We acknowledge that our investigation has several limitations. The description of our survey respondents’ characteristics (section 3) clearly shows that our sample is not representative for the Austrian population as we predominantly addressed students. Therefore, our findings do not permit us to propose generalizations beyond the discrete group of rather young, primarily female, and above-average well-educated respondents. Therefore, our results need to be tested and confirmed through representative quantitative surveys. Still, by providing a theoretical framework as well as these first explorative empirical results, we hope to offer a good basis for further studies. Besides, our findings represent self-reported behavior (i.e., they mainly reflect what respondents prefer to think and report are the factors that drive their charity choice) as well as subjective expectations, associations, and perceptions of the OSGS. Thus, social desirability bias is an issue to be considered when interpreting our results. Additionally, we focused on one charity label that is known and established in a limited regional setting. Consequently, we cannot make comparisons with charity labels prevalent in other countries. However, our exploratory study provides a valuable starting point for future research. First, it seems worthwhile to repeat our survey using a larger data set and examine the views and opinions of a broader sample of respondents. Second, our study could be replicated in other countries in order to explore possible differences between labels established there and the OSGS. Third, future research could be based on an experimental research design to thoroughly explore the signal effectiveness of charity labels. Last but not least, our theoretical framework provides manifold starting points for further research. Among other endeavors, it seems worthwhile to investigate transaction costs in more depth, and additionally it seems vital to investigate the perspective of NPOs. More information is needed about which charities (do and do not) join such accountability programs for which reasons in order to enhance our understanding of their motivations to participate in such accreditation programs as well as of the benefits and constraints such signals entail from their point of view. For this purpose, a qualitative research design (e.g., based on interviews or focus groups) might provide more in-depth insights than a standardized survey. As competition for donations and generally for attention increases, the authors expect that the practical relevance of charity labels and other accountability initiatives will continue. Our study indicates that the OSGS is in general not crucial for charity choice but at the same time useful for some NPOs under certain circumstances, and further research should develop more reliable evidence and recommendations that could facilitate their beneficial application while limiting a vain waste of time and effort.

Acknowledgments

The authors would like to thank Birgit Grüb and René C. Andeßner for helpful suggestions when developing the questionnaire as well as the anonymous reviewers for their helpful and constructive comments that contributed to improving the article.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Our study focusses on individuals’ decisions to give money; we do not analyze the impact of the Austrian charity label on giving time (volunteering) or in-kind donations (product philanthropy).