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Does Nonprofit Status Signal Quality?

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  • Anup Malani
  • Guy David

Abstract

A popular theory for why firms take nonprofit status is that it is a signal of quality. This paper offers a simple, empirical test of this theory. If nonprofit status signals quality, surely nonprofit firms would want to ensure that consumers are aware of this. A natural way for firms to do this is to indicate their nonprofit status in their advertising. Taking this cue, we conducted a survey of over 2,800 firms in the hospital, nursing home, or child care industries in order to determine whether nonprofit firms communicate their status to consumers on their Web sites or yellow pages listings. We find that fewer than 7.5 percent of nonprofit firms signal their status in yellow pages listings, only 25 percent do so on their home pages, and 30 percent do so on their about-us pages. Indeed, over 35 percent never signal their nonprofit status on their Web sites. Our evidence does not support the hypothesis that nonprofit status is a signal of quality. (c) 2008 by The University of Chicago. All rights reserved.

Suggested Citation

  • Anup Malani & Guy David, 2008. "Does Nonprofit Status Signal Quality?," The Journal of Legal Studies, University of Chicago Press, vol. 37(2), pages 551-576, June.
    • Handle: RePEc:ucp:jlstud:v:37:y:2008:i:2:p:551-576
    DOI: 10.1086/589668
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    References listed on IDEAS

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    1. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
    2. Glaeser, Edward L. & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Journal of Public Economics, Elsevier, vol. 81(1), pages 99-115, July.
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    5. Chou, Shin-Yi, 2002. "Asymmetric information, ownership and quality of care: an empirical analysis of nursing homes," Journal of Health Economics, Elsevier, vol. 21(2), pages 293-311, March.
    6. Anup Malani & Tomas Philipson & Guy David, 2003. "Theories of Firm Behavior in the Nonprofit Sector. A Synthesis and Empirical Evaluation," NBER Chapters, in: The Governance of Not-for-Profit Organizations, pages 181-216, National Bureau of Economic Research, Inc.
    7. Sloan, Frank A., 2000. "Not-for-profit ownership and hospital behavior," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 21, pages 1141-1174, Elsevier.
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    Cited by:

    1. Erwan Queinnec, 2011. "Do Not-For-Profit Organizations Meet A Demand For Trust Goods ? A Reappraisal Of The Contract Failure Theory [Resoudre Un Probleme D’Asymetrie D’Information En S’Abstenant De Faire Du Profit : Les ," Working Papers hal-01367931, HAL.
    2. Alvaro S Almeida, 2016. "The Role Of Private Non-Profit Healthcare Organizations In Nhs Systems: Implications For The Portuguese Hospital Devolution Program," FEP Working Papers 577, Universidade do Porto, Faculdade de Economia do Porto.
    3. Stroe, Silvia & Sirén, Charlotta & Parida, Vinit & Wincent, Joakim, 2022. "Framing ideas for new venture resources acquisition in crises: An fsQCA analysis," Journal of Business Venturing Insights, Elsevier, vol. 17(C).
    4. Albert H. Choi, 2015. "Non-Profit Status and Relational Sanctions: Commitment to Quality through Repeat Interactions and Organizational Choice," Journal of Law and Economics, University of Chicago Press, vol. 58(4).
    5. Skak, Morten, 2011. "Nonprofit and profit companies in monopolistic competition," Discussion Papers on Economics 1/2011, University of Southern Denmark, Department of Economics.
    6. repec:hal:cepnwp:hal-01367931 is not listed on IDEAS

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