Paul L. Caron

Tuesday, July 21, 2020

Mandatory Disclosure And Nonprofit Fundraising

Putnam Barber (University of Washington), Megan Farwell (Pennsylvania) &  Brian D. Galle (Georgetown), Does Mandatory Disclosure Matter? The Case of Nonprofit Fundraising:

Do small-dollar donors seek out potentially adverse information about organizations making fundraising appeals? Do they react when it is readily available? Do they draw negative inferences when critical information is not available? To answer these questions, we consider previously unexamined large-scale natural experiments involving US charitable organizations — tax-exempt organizations that file IRS Form 990.

Using standard difference-in-differences designs, we find that donors penalize organizations with high fundraising costs when there is mandatory disclosure or involuntary disclosure by a third-party reporter. Fundraising efficacy for lower fundraising cost organizations is greater when disclosed in these ways. The contrast with donors’ behavior when such information is not available suggests that they do not draw correct inferences when potentially consequential information is not disclosed. Disclose-on-request requirements, in contrast, apparently do not have any significant impact on donors’ or organizations’ behavior. We then sketch implications for the regulation of donations to charities and their modern cousins, such as crowdfunding and social enterprise organizations.

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