By testing a framework linking perceptions of the decision-usefulness of financial disclosures and donation intentions, this study furthers the NFP disclosure literature by bringing a renewed appreciation of donors’ interest in financial statement disclosures and the links to their donation intentions. In particular, this study makes a number of distinctive types of contributions to the literature on NFPs and giving behaviour; namely: (i) empirical, (ii) theoretical and methodological, (iii) practical, and (iv) policy-related.
In its exploration of donors’ perceptions of NFPs as influenced by financial disclosures and their charitable intentions, the study makes three key findings. First, there is a strong and positive link between donors’ perceptions of the decision-usefulness of financial disclosures by an NFP and its perceived reputation. This finding not only confirms the ability of financial disclosures to influence donors’ perceptions of the reputation of an NFP (Furneaux & Wymer, 2015); but reveals that financial disclosures which donors perceive as decision-useful have a strong link to their perception of the reputation of reporting NFP (supporting H1). This observation indicates that in addition to publishing information about their allocation of donation funds to signal its perceived integrity (Hyndman & McConville, 2018a) and legitimacy, an NFP needs to provide information which influences donors’ behavioural beliefs in terms of their perceptions of the decisionusefulness of an NFP’s disclosures and thus, of its reputation.
Second, the study finds strong and positive empirical support for the link between donors’ perception of the reputation of an NFP and their trust in the organization (H2). This finding shows a significant link between donors’ perception of the reputation of an NFP (that is, their behavioural belief) and their trust in the organisation (attitude). Given the expectation that donors would most likely associate a highly reputable NFP with being credible (Fombrun, 1996) and legitimate, it is logical that donors’ perceptions
of the reputation of an NFP has a positive strong link with their trust – a signal of their favourable assessment of the legitimacy of the organisation (Sargeant & Lee, 2004).
Third, the study finds a strong and positive link between donors’ trust in an NFP and their donation intention towards the organisation. Given that donors’ trust in an NFP signals their favourable assessment of the legitimacy of the organisation (Furneaux & Wymer, 2015) and of the NFP deserving their charitable support, this finding further confirms the significance of donors’ trust in an NFP and hence their attitude towards the organisation with respect to their donation intentions. As we have witnessed, NFP scandals and negative media coverage damage donors’ trust in the involved organization as well as the sector (Hyndman & McKillop, 2018), and overall donation support to the NFP and sector. The finding of the strong link between trust and donation intentions suggests that it is essential that an NFP develops and strengthens trustworthiness around its brand to ensure favourable donation intentions, especially to mitigate any negative impact(s) on their donation inflows from unfavourable media coverage and publicity.
As elucidated above, this study found that there are positive links lying between donors’ perceptions of financial disclosures and their donation intentions. Specifically, it was found that there were positive relationships between (a) donors’ perceptions of the decision-usefulness of financial disclosures and (b) their perceptions of the reputation of the reporting entity; between (b) and (c) their trust in the NFP; and between (c) and (d) their donation intentions towards the organisation. These links imply that the decision-usefulness of an NFP’s financial disclosures make donors more inclined to donate to the NFP via the impact of disclosures on donors’ perception of reputation and thence trustworthiness. These observations challenge the stance that donors have limited interest in financial statement disclosures (Kilcullen et al., 2007) and coheres with the view that donors engage with the narratives produced by NFPs (Khumawala & Gordon, 1997).
What then is the theoretical explanatory intuition that lies behind this study’s findings? The explanatory intuition (i.e. the framework interpretation of the findings), consistent with a number of prior studies, endeavours to shine some light into the “black box” of relationships that link donors’ perceptions of financial disclosures and their donation intentions.
The explanatory intuition is as follows. Given the information asymmetry between NFPs and their donors, the latter often face the problem of not being able to distinguish efficient organisations from less credible ones (Tremblay-Boire et al., 2016). Thus, donors require signals that help them identify organisations deserving their support. However, individual donors usually lack the power to query or to request specific disclosures from NFPs (Connolly & Hyndman, 2013). As such, the disclosures (including financial disclosures) published by an NFP provides an opportunity for donors to assess an NFP’s performance, particularly in terms of the efficiency of the organization in achieving its social mission (Reheul et al., 2014). Moreover, when an NFP makes decision-useful financial disclosures available, thereby reducing the information asymmetry between itself and its donors, the NFP signals its commitment to transparency and public accountability. Donors perceive such decision-useful financial disclosures as a demonstration of the NFP’s honesty, reliability and organisational legitimacy – in other words, the performative act of providing decision-useful financial disclosures garners the NFP a positive reputation in the eyes of donors (Connolly & Hyndman, 2013). This reputation is the basis for donors trusting the present and future conduct of the NFP – that is, it adds to donors’ confidence that the NFP does and will commit donations to its core social objectives (Keh & Xie, 2009). It is this trust in the reliability and mission-integrity of the NFP, which secures donation intentions going forward (Alhidari et al., 2018).
With respect to methodology, this study tested the proposed links between decisionuseful disclosures and donation intentions by using data from the public, representing actual and potential donors. Thus, the study contributes to discussions of donors’ motivation by extending prior studies that: (a) only used students as proxies for donors (Gordon & Khumawala, 1999; Trussel & Parsons, 2008); (b) were restricted to controlled environments when examining giving behaviours (Verhaert & Van den Poel, 2011); and (c) were focused on the behaviour of pre-existing, regular donors (Degasperi & Mainardes, 2017). By examining a sample of the Australian public (including existing and potential donors) in a “natural” uncontrolled environment, the observations made in this study provide a new insight into how the decision-usefulness of financial disclosure is linked to actual and potential donors’ giving intentions.
The kind of explanatory intuition offered for the links between decision-useful financial disclosures and donation intentions implies that it is in the interest of NFPs to make decision-useful financial disclosures since it is more likely than not to secure donation streams over time. However, there tends to be a distinct lack of financial disclosures within the NFP sector (Ghoorah, 2017) and even when regulated charities publish information, these information are not necessarily useful in working out efficiency ratios (Hyndman & McConville, 2016). This suggests that NFPs are failing to recognise that decision-useful financial disclosures can serve as a mechanism by which they can enhance their reputation, engender greater trust in donors, and thereby encourage donation intentions to support their missions. With NFPs operating in an increasingly competitive fundraising environment (Michaelidou et al., 2015), the observations of this study add to the case for all NFPs – especially those with a relatively low public profile – to publish decision-useful financial disclosures in order to reinforce or even generate donation intentions, and thereby attract greater donation inflows.
Although there is general agreement that the public would benefit from disclosure statements by NFPs, it has been argued that individual donors are likely to find GPFS too complex to comprehend and assess (Ghoorah et al., 2017). In general, donors are thus more likely to value disclosures when they are provided through “appropriate” channels (Connolly & Hyndman, 2013, p. 947). This suggests that NFPs would greatly benefit from presenting their financial disclosures in a language and format that can be easily comprehended by a wide range of stakeholder groups in society (Yang & Northcott, 2019).
Although there is general agreement that the public would benefit from disclosure statements by NFPs, it has been argued that individual donors are likely to find GPFS too complex to comprehend and assess (Ghoorah et al., 2017). In general, donors are thus more likely to value disclosures when they are provided through “appropriate” channels (Connolly & Hyndman, 2013, p. 947). This suggests that NFPs would greatly benefit from presenting their financial disclosures in a language and format that can be easily comprehended by a wide range of stakeholder groups in society (Yang & Northcott, 2019).
One practical proposal in this regard is that NFPs produce one-page “Snapshot Document” which present financial disclosures in a format that carries timely, relevant, reliable, comparable and understandable decision-useful information in a user-friendly manner. In contrast to traditional financial reports, such “Snapshot Document” would be more accessible to stakeholders with no “specialist knowledge” (Ghoorah, 2018b; Hyndman & McConville, 2018a, p. 235). As per the explanatory intuition outlined above, voluntary disclosures of this kind would reduce the perceived deception stereotype which is created by scandals and negative coverage of NFP (Zhou et al., 2018) and would enhance NFPs’ accountability reputation and would better signal to donors their trustworthiness (Becker, 2018). A two-stage study could trial the “Snapshot Document” (Stage one) and the links between donors’ perceptions of information published therein and donation intentions.
