Donors will stop giving money to a charity if it looks too profitable, even if that profit means they're actually running things well.
SSRN · March 17, 2026 · 6427641
The Takeaway
While you might think a financially healthy charity is a safe bet, donors use 'heuristic screening' to penalize nonprofits that cross a break-even threshold. This creates a 'poverty trap' where nonprofits are discouraged from building the very reserves that would make them more sustainable, whereas professional grant-makers do not show this bias.
From the abstract
This study examines whether the response of funding to nonprofit profitability differs in functional form between donations and grants. Prior research suggests that funders penalize excessive profits, yet treats funders as homogeneous and relies on ad hoc cutoffs to define "excessive." We argue that donors, who depend on limited public financial information under attention constraints, are more likely to apply heuristic screening rules that produce threshold-based (discontinuous) responses to pr