Nonprofits that are more transparent and proactively share information with the public received 53 percent more in contributions the following year than organizations that were less transparent, according to a new study.
The finding comes from a new peer-reviewed study published in December by the Journal of Accounting, Auditing & Finance. “Determinants and Consequences of Nonprofit Transparency” was authored by Erica Harris, the Andrew J. Melton Jr. ’42 Associate Professor, Accounting & Information Systems, at Villanova University and Daniel Neely, an associate professor of accounting in the Lubar School of Business at the University of Wisconsin-Milwaukee.
The authors compared total contributions of organizations that earned a GuideStar Seal of Transparency with those that did not, analyzing data from 2012 to 2013. Charitable giving in the United States for 2013 was up almost 6 percent to an estimated $340 billion from about $321 billion in 2012, according to the Giving USA Foundation.
Researchers initially looked at more than 14,000 nonprofits in the GuideStar database, selecting more than 6,300 to examine more closely. Data for the analysis was obtained from GuideStar but the organization was not involved in the analysis or creation of the paper.
Earning a GuideStar Seal of Transparency is voluntary and requires more information than what is required on the annual Internal Revenue Service (IRS) Form 990 tax return. Even when controlling for other factors, such as organization size, fundraising expenses, governance, and ratings by third parties, such as Charity Navigator or BBB Wise Giving Alliance, the authors still found transparency “strongly related” to increased contributions.”
GuideStar’s Seal of Transparency has four levels currently: Bronze, Silver, Gold and Platinum. Researchers did not distinguish between each seal level and the Platinum seal did not exist during the time period studied. Of the almost 67,000 current seal holders, about 29,000 are Bronze, 16,601 are Silver and more than 14,000 are Gold, according to GuideStar.
“We have seen evidence over the years substantiating the importance of nonprofit transparency in general,” GuideStar President and CEO Jacob Harold said via a press release. “However, this peer-reviewed research is particularly exciting because it shows a specific impact associated with earning a GuideStar Seal of Transparency.”
“We find evidence consistent with organizations that have stronger governance, better performance, and more professional staff being associated with greater transparency,” according to the paper’s abstract. “Organizations that are more reliant on contributions, and those located in states that require public disclosure of their audited financial statements, are also more transparent.”