Following the Money

Columbine. Sandy Hook. Marjorie Stoneman Douglas. 

If the whole country knows the name of your local school, it’s probably not a good sign. The places that experienced America’s deadliest school shootings are etched into our collective memory. Their names are a kind of shorthand for senseless tragedy, and they experience a lasting stigma that extends beyond the loss of human life.

Since the pandemic, school shootings have been at an all-time high. They are so common now that they don’t always make national news. Shootings have happened at kindergartens and colleges, at leafy private schools and underfunded inner-city schools.

“About one of every 10 communities in the United States has had a school shooting in the recent past,” said John Donovan, the Gerspach Family Associate Professor of Accountancy and PwC Faculty Fellow in Accountancy at the Mendoza College of Business. “In our paper, we have a map that shows where school shootings occur, and it’s basically the entire map. It is the entire country.” 

The human toll of these tragedies is both unthinkable and well known. Hundreds of young people have lost their lives. But there are other costs too, and Donovan’s research is quantifying some of them. 

Donovan researches financial accounting, with a focus on debt and equity markets. His work has explored whether credit rating agencies effectively incorporate material private information into credit ratings before that information becomes public, and how banks use executive compensation to encourage prudent risk management. 

For Donovan, being a professor at Notre Dame is more than just a job. He grew up in a Notre Dame family; his father, Joe, graduated in 1979. By the time Donovan was in high school, studying here was his number one goal. And as a teacher, he leans on the experiences he had as a student.

“I took all of the courses I’ve taught — and I wasn’t the most prolific undergraduate student,” Donovan said. “I used to teach intermediate accounting, which is the core course that prepares you to be a certified public accountant. And I got a B-minus. On day one, I always tell my students, ‘For some of you, accounting will click right away and you’ll be great at it. But others will struggle for a while, and then, all of a sudden, it will click. And some of you might be thinking, wait, how can this guy possibly teach me if he got a B-minus in this class? And some of you might be thinking, I guess there’s hope for me, too.’ But that’s how I’ve always felt: Work hard and it’ll pay off.”

Donovan, who grew up near Detroit, lives close enough to campus to walk to work. He goes for regular runs here, and it’s where he taught all three of his children to ride a bike. 

“Coming here was a lifelong goal,” he said. “One reason I try to do well in the classroom and in my research, isn’t just to get promoted or get accolades, but because I really care about the mission of the school. I want to do my small part to try and elevate Mendoza and Notre Dame.” 

The Cost of Stigma

Studying school shootings might seem like a departure for accounting research, but for Donovan, the motivation is personal. He has school-aged children, and, like many children across America, they periodically do active shooter drills. His oldest is now 10, old enough to understand what the training is really for.

“Looking at this problem through a personal lens, we thought about what we could do as accounting researchers,” said Donovan. “I’m not trained to look at the psychological effects of school shootings, but I am trained to research capital markets. And capital markets provide a unique way to document some costs of school shootings.” 

After the tragedy of a school shooting, school administrators often take steps to prevent a repeat occurrence. They invest in infrastructure such as metal detectors or surveillance equipment, and provide students with mental health support. This adds up to greater financial need in the near term, but Donovan’s research has found that school districts simultaneously pay a financial penalty. 

Capital investments in schools in the United States are often funded by issuing a type of municipal bond called an education bond. It works like this: A school district issues bonds to raise funds, then uses part of its operating budget to pay interest to bondholders over a period of several years. The market for these bonds is huge. In all, municipal bonds are a $4 trillion market, and education bonds account for a significant part of that.

“When a school shooting occurs, no one is thinking, ‘What’s happening in the bond market?’” Donovan said. “But schools that experience this type of tragedy are stigmatized. It becomes harder for them to access financing. And when they do, they pay a higher cost to borrow money.” 

Working with Stephanie Cheng of Tulane University and Jessica Watkins of Mendoza, Donovan analyzed the credit ratings and borrowing costs for 440,000 education-related bonds issued by school districts, schools, education boards and educational entities between 2010 and 2019. The study included 288 areas that experienced a school shooting incident, most of which were not mass shootings. About one-third had resulted in a fatality.

The researchers found that municipal credit ratings declined modestly in the wake of a school shooting. Areas that had experienced a shooting in the three years before a bond was issued paid more interest: 5.1 basis points higher than areas that had not had a school shooting. That amount nearly doubled if the shooting was fatal. And it more than doubled if there had been extensive media coverage of the shooting. 

“There is an impact on their credit and a pretty large stigma effect,” said Donovan. “Education bonds are funded through enrollment in the school or property taxes. After a school shooting, some people move away and both of those sources of revenue go down. At the same time, expenditures go up because schools are investing in infrastructure and safety.”

In all, areas where a school shooting had occurred paid more interest on the bonds they issued, an amount greater than the credit rating decline would warrant. Donovan estimated that the average increase in borrowing costs was a little more than $431,000 each year, and he attributed the costs to the effects of stigmatization.

“In finance, investors are less willing to hold what would be called ‘sin’ industries, like tobacco, for example,” he said. “As a result, tobacco stocks trade at a discount relative to their fundamentals. Schools that experience a shooting are stigmatized by association. It reduces investors’ willingness to invest in their bonds, which drives borrowing costs higher.” 

Capital Ideas

Another example of where accounting research offers insights into community-related issues is Donovan’s research in the area of equity crowdfunding. It works a lot like crowdfunding platforms such as Kickstarter or GoFundMe. Investors provide funds to a business, but instead of getting a product in return, they get an equity stake. 

Equity crowdfunding can help small businesses raise capital when they might otherwise struggle to obtain financing. “Let’s say someone wants to open a local coffee shop or a brewery. There are people who live in the neighborhood who might just want to have access to those things and would be willing to provide some capital to make it happen,” said Donovan.

Donovan became interested in the topic because he was concerned that burdensome reporting requirements could limit the growth of the U.S. equity crowdfunding market. In a recent paper, he examined the UK market, where financial reporting is voluntary, to see whether investors view disclosure as a signal of firm quality. 

“The United States requires auditor involvement,” said Donovan. “Before the Jumpstart Our Business Startups (JOBS) Act was passed in 2012, equity crowdfunding would have been illegal here. If a company wanted to raise $100,000 this way, it would have had to go through the exact same process as a large company doing an IPO on a public stock market.”

The JOBS Act regulated equity crowdfunding, requiring firms to produce two years of financial statements. The idea was to be less onerous than an IPO, but it still requires small businesses to produce detailed financial reporting. 

Donovan found that financial statement disclosure helps entrepreneurs raise more money through equity crowdfunding because it reduces information gaps between firms and potential investors. Because financial statements are voluntary in the UK, investors can treat them as a signal: Stronger firms tend to share more information, helping them stand out and attract more capital. 

“Equity crowdfunding is more democratic than bank loans or venture capital,” Donovan said. “It could help a company in a place like South Bend access retail investors. Each investor might only be willing to provide a few dollars, but it can be enough money to get a small business off the ground.”

2026 Magazine Issue

 

John Donovan is the Gerspach Family Associate Professor of Accountancy and a PwC Faculty Fellow.

Published

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