Fundraising as Strategic Signaling: How Donor Time Horizons Shape Nonprofit Resource Mobilization

This paper develops a theory of fundraising as strategic signaling under heterogeneous donor time horizons. Popular rating practices treat high fundraising ratios as evidence of waste, yet many capital-intensive missions require sustained investment in fundraising capacity. The paper models the interaction between a nonprofit organization with private information about its mission productivity and donors who observe only fundraising expenditures. Donors differ in the weight they place on the organization’s anticipated future program output. When donors place no weight on future impact, fundraising mainly signals fiscal probity: high-productivity organizations separate from low-productivity ones by keeping overhead low, while low-productivity organizations take advantage of private benefits from higher fundraising. When donors instead value future impact, the same fundraising ratio can signal strategic investment. Beyond an endogenous threshold in donor time horizon, high-productivity organizations separate by choosing higher fundraising levels that credibly signal confidence in future returns, whereas low-productivity organizations cannot mimic them.