The Determinants of Transparency in Nonprofit Organizations: An Exploratory Study

This study examines why some nonprofit organizations voluntarily provide their audited financial statements for review (our proxy for being more transparent) and others do not. Analyzing transparency in the nonprofit sector is important because many stakeholders contribute significant time and money to nonprofit efforts and nonprofit organizations play a significant role in our national economy. In this study, we examine the transparency issue by requesting audited financial statements (currently these are not required disclosures) from the 300 largest nonprofits in the U.S., as of 2001. Since this decision is voluntary and many of our sample firms choose not to disclose this information, we investigate whether there are factors associated with this choice (e.g., our proxy for transparency). We find that a nonprofit is more likely to allow us access to its audited financial statements if it has more debt, has a larger contribution ratio, is a larger organization, has a NTEE classification of Higher Education, and has a higher compensation expense ratio. By contrast, it appears that a nonprofit with lobbying expenses is less likely to disseminate its audited financial statements. Many interested parties, including the Senate, donors, other stakeholders and researchers, are concerned about transparency in the nonprofit sector. This study can add to their debate by demonstrating which factors are associated with transparency in the nonprofit sector.