Association for Public Policy Analysis & Management

Nonprofit voluntary accountability and transparency are important to nonprofit financial performance, particularly in relation to donative revenue. Transparency has emerged as a central strategy for improving the performance of public services (Joshi, 2013). Likewise, voluntary information disclosure, especially online disclosure, have arisen as important mechanisms for the financial performance of nonprofit and voluntary organizations. Voluntary disclosure of information is thought to be an important way to increase nonprofit accountability and transparency in the era of web 2.0 and new media (Saxton & Guo, 2011) since it can enhance a nonprofit’s reputation and increase trust from the public (Ebrahim, 2003, 2010).

A growing body of empirical research has examined the association between transparency and donations, but mixed and limited evidence is revealed. Most previous research examined the association between transparency and donations based on cross-sectional data and found mixed results. Some studies (e.g. Atan, Zainon, & Wah, 2012; Blouin, Lee, & Erickson, 2018; Greenlee and Brown, 1999) found a positive association between disclosure of financial information and aggregated amount of donations to nonprofits, while others (e.g. Saxton, Neely, & Guo, 2014; Haski-Leventhal & Foot, 2016) revealed no significant relation between the two. Evidence on the correlation between disclosure of performance information and donations is also mixed. In addition, although some previous experimental studies (e.g. Buchheit & Parsons, 2006; Parsons, 2007) found that voluntary disclosures of financial and performance information by nonprofits seemed important to potential donors and that disclosure of financial information may increase the respondents’ (new or prior donors) propensity to donate, they found no significant evidence that disclosure of neither type of information led to an increase in actual donations to nonprofits in experimental settings. Therefore, it is still not clear whether transparency plays a causal role in influencing donations to nonprofits.

Based on a five-year panel of a large national sample of foundations in China from 2013 to 2017, this study intends to explore the casual effect of transparency on donations to foundations in China. The independent variable is transparency score, which is measured by the Foundation Transparency Index (FTI), a validated measure by the China Foundation Center, utilizing more than 40 number of transparency indicators on foundations’ general information, financial information, project information, and donor-related information. The dependent variable is total donations received by foundations each year from 2013 to 2017. By using a fixed effects model, this study will be able to detect the impact of the change in transparency score over time on the change in donations to foundations over time. This would be the very first panel study in the literature to explore the causal relationship between transparency and donations to nonprofits.