The Effects of Financial Reporting Transparency and High-Quality Audit on Donations to Non-Profit Organizations: Evidence from Korean Charitable Organizations

재무보고의 투명성과 감사품질이 비영리법인의 기부금에 미치는 영향 : 한국자선단체로부터의 증거

Lee, Jong Eun;Choi, Ahnkyu

  • Received : 2018.11.14
  • Accepted : 2019.01.20
  • Published : 2019.01.28


In this study, we investigate the effects of disclosure and high-quality audit on donations to charitable organizations in Korea. We find that the mandatory disclosure of financial information and high-quality audit is significantly and positively related to donations to charitable organizations. We also find that charitable organizations audited by Big 4 audit firms have greater likelihood to receive more donations, compared to those audited by non-Big 4 audit firms. Furthermore, we find that those positive associations are more pronounced for smaller charitable organizations. Collectively, those results imply that, as in the profit-making sector, disclosure and high-quality audit play a critical role in enhancing accountability and transparency of financial reporting and revenue for charitable organizations.


mandatory disclosure;audit quality;non-profit organization;financial reporting transparency;donation


  1. Independent Sector. (2014). The Sector's Economic Impact, Washington, DC.
  2. M. E. Barth, Y. Konchitchki & W. R. Landsman. (2013). Cost of Capital and Earnings Transparency. Journal of Accounting and Economics, 5, 206-224.
  3. J. Francis, R. LaFond, P. Olsson & K. Schipper. (2005). The Market Pricing of Accruals Quality. Journal of Accounting and Economics, 39, 295-327.
  4. F. Ecker, J. Francis, I. Kim, P. M. Olsson & K. Schipper. (2006). A Returns-Based Representation of Earnings Quality. The Accounting Review, 81, 749-780.
  5. U. Bhattacharya, H. Daouk & M. Welker. (2003). The World Progratio of Earnings Opacity. The Accounting Review, 78, 641-678.
  6. J. Francis, R. LaFond, P. Olsson & K. Schipper. (2004). Costs of Equity and Earnings Attributes. The Accounting Review, 79, 967-1010.
  7. S. H. Teoh & T. J. Wong. (1993). Perceived Auditor Quality and the Earnings Response Coefficient. The Accounting Review, .68(2), 346-366.
  8. S. Balsam, J. Krishnan & J. S. Yang. (2003). Auditor Industry Specialization and Earnings Quality. Auditing: A Journal of Practice and Theory, 22(20), 71-97.
  9. K. Kitching. (2009). Audit Value and Charitable Organizations. Journal of Accounting and Public Policy, 28(6), 510-524.
  10. J. S. Greenlee & K. L. Brown. (1999). The Impact of Accounting Information on Contributions to Charitable Organizations. Research in Accounting Regulation, 13, 111-125.
  11. D. Tinkelman. (1999). Factors Affecting the Relation between Donations to Not-for-Profit Organizations and an Efficiency Ratio. Research in Government and Nonprofit Accounting, 10, 135-161.
  12. T. P. Gordon & S. B. Khumawala. (1999). The Demand for Nonprofit Financial Statements: A Model of Individual Giving. Journal of Accounting Literature, 18, 31-56.
  13. N. Hyndman. (1990). Charity Accounting: An Empirical Study of the Information Needs of Contributors to UK Fundraising Charities. Financial Accountability & Management, 6(4), 295-307.
  14. N. Hyndman. (1991). Contributors to Charities - A Comparison of their Information Needs and the Perceptions of such by the Providers of Information. Financial Accountability & Management, 7(2), 69-82.
  15. A. Christensen & R. Mohr. (2003). Not-For-Profit Annual Reports: What do Museum Managers Communicate. Financial Accountability & Management, 19(2), 139-158.
  16. S. Buchheit & L. M. Parsons. (2006). An Experimental Investigation of Accounting Information's Influence on the Individual Giving Process. Journal of Accounting and Public Policy, 25(6), 666-686.
  17. C. L. Becker, M. L. DeFond, J. Jiambalvo & K. R. Subramanyam. (1998). The Effect of Audit Quality on Earnings Management. Contemporary Accounting Research, 15(1), 1-24.
  18. J. Francis & J. Krishnan. (1999). Accounting Accruals and Auditor Reporting Conservatism. Contemporary Accounting Research, 16(1), 135-165.
  19. M. F. Sloan. (2009). The Effects of Nonprofit Accountability Ratings on Donor Behavior. Nonprofit and Voluntary Sector Quarterly, 38(2), 220-236.
  20. T. P. Gordon, C. L. Knock & D. G. Neely. (2009). The Role of Rating Agencies in the Market for Charitable Contributions: An Empirical Test. Journal of Accounting and Public Policy, 28(6), 469-484.
  21. M. L. DeFond. (1992). The Association between Changes in Client Firm Agency Costs and Auditor Switching. Auditing: A Journal of Practice & Theory, 11(1), 16-31.
  22. M. Firth & A. Smith. (1992). Selection of Auditor Firms by Companies in the New Issue Market. Applied Economics, 24, 247-255.
  23. J. R. Francis & E. R. Wilson. (1988). Auditor Changes: A Joint Test of Theories Relating to Agency Costs and Auditor Differentiation. The Accounting Review, 63(4), 663-682.
  24. L. J. Abbott & S. Parker. (2000). Auditor Quality and Audit Committee Characteristics. Auditing: A Journal of Practice & Theory, 19(2), 47-66.
  25. W. R. Baber, A. A. Roberts & G. Visvanathan. (2001). Charitable Organizations' Strategies and Program-Spending Ratios. Accounting Horizons, 15(4), 329-343.
  26. A. A. Roberts, P. Smith & K. Taranto. (2006). Evaluating Charitable Spending: Marginal versus Average Performance Measures. Working paper, Boston College, University of Texas at San Antonio and Georgetown University.
  27. B. Weisbrod & N. Dominguez. (1986). Demand for Collective Goods in Private Nonprofit Markets: Can Fundraising Expenditures Help Overcome Free-Rider Behavior?. Journal of Public Economics, 30(1), 83-95.
  28. J. W. Tucker. (2010). Selection Bias and Econometric Remedies in Accounting and Finance Research. Journal of Accounting Literature, 29, 31-57.
  29. J. L. Gandia. (2011). Internet Disclosure by Nonprofit Organizations: Empirical Evidence of Nongovernmental Organizations for Development in Spain. Nonprofit and Voluntary Sector Quarterly, 40(1), 57-78.


Supported by : National Research Foundation of Korea