Spillovers in the Charitable Market : Evidence from Reputation Shocks

This paper provides novel evidence on the spillover effect of negative reputation shocks affecting a charity on donations to other charities. I identify negative reputation shocks to large charities by using sentiment analysis on the universe of news articles in the United Kingdom. I then link these large charities to all other charities by constructing measures of textual similarity between charities' mission statements. I find that a negative reputation shock to a charity increases donations to other charities that share similar objectives. This finding is consistent with the charity market being a differentiated market in which donors care about charities' missions and substitute across charities with similar objectives. I show that my text-based, multi-dimensional charity similarity measure picks up substitution effects that are not captured by simpler, sectoral indicators