Does Accounting Information of Korean Nonprofit Organizations influence Donors’ Donation Decisions? Evidence from Analyses on Budget Usage and Accounting Quality

This study investigates whether accounting information of Korean nonprofit organizations (hereinafter NPO) influences donors’ subsequent-period donation decisions. Analyzing NPOs running social-welfare businesses which account for the largest portion of total donation revenues in Korea for the period 2014-2017, we find that donors perceive NPOs reporting higher program ratios (i.e., the ratio of program expenses to total expenses) as more efficient in budget usage and thus, increase the amount of subsequent-period donation. However, the positive association between program ratio and subsequent-period donation is attenuated for NPOs with low accounting quality, suggesting that donors’ reliance on NPOs’ accounting information varies with the credibility of the information contents. Collectively, our findings indicate that despite the increasing concerns on accounting transparency of Korean NPOs, donors incorporate the two attributes of accounting information – contents and quality-in their decision-making and that the accounting information system functions effectively, contributing to the efficient resource allocation in the nonprofit sector.