A research paper, recently published in the leading business science journal Management Decision, has furthered understanding of the relationship between formal and informal reputational signals, stakeholder trust and intention to donate. Though the experimental study focused on the particular context of nonprofit organizations (NPOs), the findings have implications for a far broader audience.
Interview with Subhan Shahid, candidate in the Entrepreneurship and Innovation team of Grenoble Ecole de Management, whose research focuses on understanding the dynamics of entrepreneurial exit, in particular, the psychological and behavioral antecedents such as the personal reasons for exit and the cognitive evaluations of the exit decision.
What are reputational signals and why are they important for NPOs?
NPOs are dependent on external stakeholders for donations and funding. Trust is known to play a central role in this exchange and it has been shown that reputational signals can improve trust towards an organization. These signals can be classified as either formal or informal.
Formal reputational signals include, for example, third-party certification whereby an external and independent institution confirms that a prescribed standard of performance has been achieved. These formal endorsements have been shown to foster trust and improve the perceived credibility, legitimacy and transparency of the organization. Formal reputational signals have thus proliferated globally - the International Organization for Standardization (ISO) 9000 (related to quality management) or 14000 (related to environmental management) certifications are prominent examples.
Informal reputational signals, on the other hand, are more difficult to define and their interpretation is therefore more subjective. They can be considered in terms of self-proclamation of a specific quality. For this study, we focused on the quality of social entrepreneurship which is becoming increasingly important in the nonprofit sector and involves the employment of a for-profit business model to make a positive impact on social issues or the environment.
What did this study reveal about the relationship between reputational signals, stakeholder trust and intention to donate within the context of NPOs?
The objective of this study was to investigate whether NPOs exhibiting third-party certification and/or proclaiming to be social entrepreneurial had a positive impact on stakeholder trust and intention to donate, as compared to an NPO with no formal and informal reputational signals.
The online experiment involved 248 students, randomly assigned to one of four experimental conditions: a profile description of a fictitious environmental NPO that either included (i) no reputational signals, (ii) a formal reputational signal in the form of a fictitious third-party certificate, (iii) an informal reputational signal by addition of the words 'social entrepreneurial' or (iv) a formal and an informal reputational signal. After reading the assigned profile description, participants answered a short questionnaire.
The results demonstrated that the use of formal reputational signals by NPOs has a positive impact on both stakeholder trust and intention to donate. Moreover, it is trust that mediates the relationship between the signal and the intention to donate. Furthermore, the measured effects are strengthened by the additional presence of an informal reputational signal. Our findings therefore suggest that NPOs could consider the inclusion of both formal and informal reputational signals in their marketing strategies.
Can the influence of reputational signals and trust be considered beyond the specific case of NPOs?
Absolutely, the ability of reputational signals to enhance external stakeholder trust is important for all organizations, even business schools. GEM, for example, possesses three different third-party accreditations - EQUIS (European Quality Improvement System), AACSB (The Association to Advance Collegiate Schools of Business) and AMBA (The Association of MBAs). However, it is trust that will influence how the reputational signals of an organization are perceived. For example, if signals are employed but organizational accountability, transparency and disclosure are lacking, rather than promoting trust, the signals may in fact induce mistrust.
What is the link between the importance of reputational signals for NPOs and your PhD on entrepreneurial exit?
The PhD program at Grenoble Ecole de Management is divided into two phases: the first phase lasts two years and is dedicated to an extensive methodological and theoretical training in research methods and theories, while the three years of the second phase are devoted to dissertation work. As part of the first phase, I undertook a course in Experimental Design taught by Carolina Werle and Olivier Trendel. This work originates from the assignment I carried out for that course which involved designing and running an experimental study. The potential of the results was identified when I shared them with my network and my co-authors, Annika Becker at the Lucerne School of Business and Yasir Mansoor Kundi at IAE Aix-Marseille, helped me to develop and repeat the experiment and then publish the findings.
How will this work influence your research on entrepreneurial exit?
In entrepreneurship, and even more generally, rigorous experimental design is very much encouraged in order to demonstrate the causality of different relationships. In that sense, this work has provided invaluable experience in how to design and run an experimental study. For example, a fundamental first challenge in experimental design is to successfully create different profile descriptions. In this study, the four profiles were created through the inclusion or not of a formal and/or informal reputational signal. However, the first time I ran the experiment, the formal reputational signal, represented by a third-party certification, was too small and not positioned prominently enough and the manipulation check thus failed. That was a valuable lesson to learn because if that first step is unsuccessful, no hypothesis can be proved from the results. I am now employing the same experimental design strategy but within my area of research in order to investigate how reputational signals, such as a sustainable entrepreneurial label, impact the perceived prestige of a start-up and influence investment in the start-up (similar to donations to NPOs).
Article: Shahid S., Becker A., Kundi Y. M. Do reputational signals matter for nonprofit organizations? An experimental study, Management Decision, 2021.