Financial or Performance Transparency? A Survey Experiment on the Impact and Mechanism of Nonprofit Transparency on Donations in China

• In Event: Trust in philanthropy and fundraising

Abstract

As a bridge between societal needs and citizen participation, the level of information disclosure and transparency of nonprofit organizations is crucial for gaining trust and support from potential donors. However, empirical studies delving into the causal relationship between nonprofit transparency and donations are relatively scarce.

Using data from a 3 (financial transparency: high/mid/low)×3 (performance transparency: high/mid/low) survey experiment (N=1200) in China, this study explores the causal mechanism between nonprofit transparency and donations, and the differences between financial and performance transparency in affecting donations to nonprofits.

Statistical analysis based on experimental data reveals that higher levels of nonprofit transparency significantly promote donations, with potential donors’ trust in the nonprofit organization playing a mediating role. Particularly, potential donors that value more for information disclosure and donated less in past year are more reliant on the transparency of nonprofit organizations when deciding to donate. Additionally, potential donors are found to be more sensitive to financial transparency than performance transparency.

This study suggests that enhancing information disclosure and transparency of nonprofit organizations not only helps reduce information asymmetry between nonprofits and donors, but also stimulates the willingness to donate of potential donors. The study contributes to the literature not only by identifying the causal mechanism between nonprofit transparency and donations, but also by providing empirical evidence for nonprofit organizations to attract more donations through improving financial and performance transparency. In addition, the findings of this study can also offer practical guidance for policymakers and nonprofit managers to promote public trust and information disclosure in nonprofit sectors.

References

1.Banding, M. P., & Mayangsari, S. (2017). The Impact of Financial and Non-Financial Information Disclosure to Donation Decision in NonProfit Organization by Individual Donor (A True-Experiment Research). financial accounting, 8(16), 9-19.
2.Blouin, M. C., Lee, R. L., & Erickson, G. S. (2018). The impact of online financial disclosure and donations in nonprofits. Journal of Nonprofit & Public Sector Marketing, 30(3), 251-266.
3.Buchheit, S., & Parsons, L. M. (2006). An experimental investigation of accounting information’s influence on the individual giving process. Journal of Accounting and Public Policy, 25(6), 666-686.
4.Deng, G., Lu, S., & Huang, C. C. (2015). Transparency of grassroots human service organizations in China: Does transparency affect donation and grants?. Human Service Organizations: Management, Leadership & Governance, 39(5), 475-491.
5.Parsons, L. M. (2007). The impact of financial information and voluntary disclosures on contributions to not‐for‐profit organizations. Behavioral research in accounting, 19(1), 179-196.
6.Li, H., & McDougle, L. (2017). Information source reliance and charitable giving decisions. Nonprofit Management and Leadership, 27(4), 549-560.
7.Trussel, J. M., & Parsons, L. M. (2007). Financial reporting factors affecting donations to charitable organizations. Advances in Accounting, 23, 263-285.

Authors

• Zhongsheng Wu, Zhejiang University School of Public Affairs

• Yiming Dai