How Do Nonprofits Respond to Quality Disclosure? Evidence from Nonprofit Nursing Homes

This paper uses a disclosure policy, the Nursing Home Quality Initiative, which mandates the public reporting of quality information on selected dimensions, to investigate the theories of nonprofits. My main finding is that nonprofits are as responsive as for-profits to quality disclosure: quality improves along the disclosed dimensions and diminishes along the less disclosed ones. I also find (1) nonprofit status is correlated with fewer deficiency citations; (2) total bed days insignificantly increase in nonprofits after disclosure; and (3) nonprofits with higher percent of revenue coming from donations are more likely to perform worse along the unreported dimensions. Additional tests reject “mimicking for-profits” as an explanation for these results. Overall, the Newhouse model plausibly explains these findings better than the other well-established nonprofit theories. JEL: L31, L15, I18