Effects of large non-profit organization financial disclosures on private donor giving

This study provides improved evidence on the effects of certain financial disclosures of large non-profit organizations (NPOs) on private donor giving to such NPOs. Prior studies test a model of private donations to U.S. NPOs in cross sectional, pooled cross-sectional, or first-differences form. None has applied econometric tests to identify the "best" specification of the model for U.S. NPOs. This study applies econometric tests to identify the "best" specification of a model of private donor giving for U.S. NPOs and tests this model specification using panel data for 838 large U.S. NPOs for ten years. This study is also the first to nominate and test the financial disclosure "years of available assets" and to develop theory from which one can infer the price elasticity of donor demand for NPO output. Results of testing the pooled cross-sectional form of the model with data in this study are similar to results of the prior studies, which use cross-sectional, pooled cross-sectional, or first differences forms of the model. However, results of testing the "best" specification of the model, two-way fixed effects, are substantially different from the results of testing cross-sectional, pooled cross-sectional, and first differences forms of the model. This strongly suggests that these forms of the model are misspecified. Results of testing the two-way fixed effects model indicate that the financial disclosure "administrative efficiency" has a significant effect on private donations in the full sample of 838 NPOs and in two of six industry samples---arts NPOs and philanthropic NPOs, not in all industry samples, as is suggested in the prior studies. The results also indicate that price elasticity of donor demand for output of NPOs in the full sample and the arts industry sample is inelastic. Results of prior studies suggest that donor demand for NPO output is elastic for all industries and in the full sample. Furthermore, results suggest that "years of available assets" does not have a significant negative effect on private donations to NPOs in any of the samples, but has a significantly positive effect on private donations to NPOs in two of six industry samples---education and philanthropic.