Does transparency come at the cost of charitable services? Evidence from investigating British charities

Canh Dang and Trudy Owens

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Recent high-profile scandals related to misuse of funding and donations have raised the demand for scrutiny over financial transparency and operational activities of non-profit organizations in developed countries. Our analysis challenges the common practice in the sector of using programme ratios and overhead costs as indicators for non-profit accountability. Using Benford's Law to measure irregularities in financial data for a large sample of public charities we estimate that 25% of the sample potentially misreport their financial information. We show theoretically and empirically that charities with a higher programme ratio (their level of spending on charitable activities), will be less likely to misreport their financial information only when their overhead costs (spending on governing activities) are also sufficiently high. Tighter monitoring becomes ineffective in increasing the sectoral transparency and accountability unless accompanied by a sufficiently high level of charitable spending.

Keywords: Benford's law; Heteroskedasticity-based instruments; misinformation; non-profits; public provision of financial reports (search for similar items in EconPapers)
JEL-codes: D82 H49 H83 L31 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2020-04-01
New Economics Papers: this item is included in nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published in Journal of Economic Behavior & Organization, 1, April, 2020, 172, pp. 314 - 343. ISSN: 0167-2681

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Related works:
Journal Article: Does transparency come at the cost of charitable services? Evidence from investigating British charities (2020)
Working Paper: Does transparency come at the cost of charitable services? Evidence from investigating British charities (2019)
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