Transparency and Charitable Giving

Charitable giving in the United States remains strong, topping $410 billion in 2017, 70% of which came from individuals, according to a report by Giving USA.

At the same time, donors are becoming increasingly savvy about the organizations that they give to.  Websites such as GuideStar and Charity Navigator help donors understand how the nonprofit spends the money it raises by providing information that the charities make public.

But how much of a difference does this information make in donors’ decision making?

A recent study by Associate Professor of Accounting Daniel Neely and his colleague Erica E. Harris at Villanova University studied 14,000 industry-diverse nonprofit organizations in the GuideStar database to ascertain whether the level of transparency and information sharing affects contributions.

GuideStar stores information on 2.4 million tax-exempt organizations. Utilizing the GuideStar database was particularly helpful, Neely said, as charities can voluntarily apply to earn various levels of the GuideStar Seal of Transparency.

First, the researchers looked at the issue of transparency itself.  Neely and Harris found that organizations with stronger governance, better performance (measured by cost of fundraising), and more professional staff were those that exhibited greater levels of transparency.  Nonprofits that are more reliant on contributions, and those located in states requiring public disclosure of their audited financial statements, were also more transparent.

In turn, that transparency in information makes a difference to the bottom line.

“We found that transparent organizations accrue more in contributions in the year following the information disclosure than organizations delivering only basic information,” said Neely.

Overall, he said, transparency in the nonprofit sector adds value for all involved.

Dan NeelyDr. Daniel Neely is an Associate Professor of Accounting and the Ronald E. Pawasarat Faculty Scholar at the University of Wisconsin-Milwaukee’s Lubar School of Business.  His research focuses on the role of financial information  in governmental and nonprofit organizations.