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

Dang, Canh Thien and Owens, Trudy (2020) Does transparency come at the cost of charitable services? Evidence from investigating British charities. Journal of Economic Behavior and Organization, 172. 314 - 343. ISSN 0167-2681

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Identification Number: 10.1016/j.jebo.2020.02.020

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.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-e...
Additional Information: © 2020 Crown Copyright
Divisions: Economics
Subjects: H Social Sciences > HV Social pathology. Social and public welfare. Criminology
H Social Sciences > HF Commerce > HF5601 Accounting
JEL classification: L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L31 - Nonprofit Institutions; NGOs
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
H - Public Economics > H8 - Miscellaneous Issues > H83 - Public Administration
H - Public Economics > H4 - Publicly Provided Goods > H49 - Other
Date Deposited: 02 Apr 2020 12:51
Last Modified: 27 May 2020 23:17
URI: http://eprints.lse.ac.uk/id/eprint/103943

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