NONPROFITS BENEFIT FROM TRANSPARENCY

By January 9, 2019 Blog

new peer-reviewed study published by the Journal of Accounting, Auditing & Finance indicates that nonprofits that proactively shared information with the public received substantially more in contributions the following year than less transparent organizations.

“Determinants and Consequences of Nonprofit Transparency” was authored by Professors Erica Harris, Villanova University, and Dan Neely from University of Wisconsin-Milwaukee. Harris and Neely found that organizations that went from not being transparent to being transparent saw an increase of 53 percent in total contributions, one year later. Furthermore, organizations that elect to be more transparent had stronger performance across a range of governance, financial, and operational dimensions.

“My co-author and I defined transparent by the amount of information made available to donors beyond that released in an organization’s annual IRS return,” stated Erica Harris. “Because earning a GuideStar Seal of Transparency is completely voluntary and requires information beyond that available on IRS Form 990, we compared the total contributions of organizations that earned a Seal with those that did not. We hypothesized and found that the decision to be transparent is associated with greater future contributions.”

Professors Harris and Neely initially looked at more than 14,000 nonprofits in the GuideStar database, selecting more than 6,300 organizations from that group to examine more closely. The nonprofits represented a range of missions and programs. The researchers analyzed data from 2012 to 2013, comparing total contributions to those organizations from one year to the next. Even when the authors controlled for other explanatory factors such as organization size, fundraising expenses, governance, and ratings by third parties (e.g., Charity Navigator, Charity Watch, BBB Wise Giving Alliance), they still found transparency strongly related to increased contributions. Although Professors Harris and Neely obtained the raw data for their analysis from GuideStar, GuideStar was not involved in the data analysis or creation of the article.

“We have seen evidence over the years substantiating the importance of nonprofit transparency in general,” said Jacob Harold, president and CEO of GuideStar. “However, this peer-reviewed research is particularly exciting because it shows a specific impact associated with earning a GuideStar Seal of Transparency.”

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