The Role of Donations in Quality Disclosure: Evidence from Nonprofit Nursing Homes

Abstract

This paper uses a quality disclosure policy, the Nursing Home Quality Initiative, which mandates the public reporting of quality information on selected dimensions, to investigate how nonprofit nursing homes react to economic incentives. I find that nonprofits are as responsive as for-profits to quality disclosure: quality improves along the reported dimensions and diminishes along the unreported ones. Further tests show that nonprofits may respond to donations and fail to mimic for-profits when competing with them. These findings suggest that donor response may be the motive for nonprofits to respond to quality disclosure in the same way as for-profit alternatives.

Keywords: nonprofit, quality disclosure, donation, teaching-to-the-test, mimicking

JEL Classification: L31, L15, I18, L33, L51