The Cost and Benefits of Voluntary Disclosures by Nonprofit Organizations

Nonprofit organizations can make voluntary disclosures useful to donors through annual reports that describe their accomplishments and thank donors for their support. Donors may be motivated to make future contributions to a nonprofit organization based on either the content of the annual report or the increased level of transparency that the production of an annual report signals. To examine whether voluntary disclosure within an annual report is associated with tangible benefits in the form of donations, we look to a line of research that began with Weisbrod and Dominguez (1986). In these models donations represent the demand for nonprofit goods and services. As with any economic model, demand is negatively related to the price of giving but fundraising (advertising) can increase demand. By adding a voluntary disclosure variable to a demand model, we find that voluntary disclosure level is significant in predicting donations received in the following year. We then examine the differences between nonprofit organizations that distribute an annual report and those that do not. While nonprofit organizations that do not distribute an annual report are generally smaller and younger, the important differences appear to be higher fundraising costs and lower efficiency statistics. After controlling for management style, administrative costs, ability to meet industry efficiency norms, and industry group, we find no difference in contributions in the following year. This suggests that proprietary costs do affect the voluntary disclosure decision