2.1. Motivations for Financial and Non-Financial Information Disclosure
Several conceptual theories try to explain how non-profits disclose information among their stakeholders taking into account their primarily social mission: institutional theory, legitimacy theory, resource dependence theory and stakeholder theory [
7,
20,
21]. These theories also help to understand the different approach to accountability (holistic vs. hierarchical), its prevalence in financial disclosure practices as well as the transparency policy [
7,
22].
Accountability and transparency are concepts that are closely related to each other [
22,
23,
24,
25,
26] and to the decision-making process in nonprofits. They require both robust financial information and non-financial information covering activities and projects [
27]. As pointed out by Ebrahim [
24], due to their special nature, nonprofits are expected to be accountable for multiple purposes (finances, governance, performance and mission) to different stakeholders (government, beneficiaries, private donors, board members, volunteers, employees and citizens).
These stakeholders donate, invest or lend not only money but also time, prestige, etc. [
5,
28,
29]. However, although they expect different returns, “social impact is the goal that unifies them”. Furthermore, if the concept of investment is expanded “by expanding the range of returns that investors seek and the resources they invest”, they can also be considered as investors which means that they need information beyond financial data for making decisions [
5] (pp. 6–27).
The entity should try to match the expectations of all its stakeholders as regards information (stakeholder theory), without prioritising financial resources providers (donors). In addition, it must be taken into account that nonprofits rely heavily on their reputation to ensure their legitimacy (legitimacy theory) and to protect both their financial sources (resource dependence theory) [
30] and non-financial resources (such as time, expertise or reputation).
Incorporating all the above requires nonprofits to disclose both credible financial information, which is the most abundant, available and standardised, as well as reliable non-financial information (i.e., projects and social impacts) [
31]. In short, this multiple stakeholder perspective requires an integrated or holistic accountability model [
7,
22].
So far, we have considered the theory, the “what should be”. However, in practice, as donations are the main source of funding for most nonprofits, these entities have mostly implemented a hierarchical and myopic accountability practice focused on donors and financial indicators [
9], which leads to information asymmetries among different stakeholders [
12,
29]. In other words, disclosure of financial information prevails over non-financial information.
After analysing the (theoretical) reasons for nonprofits to disclose both financial and non-financial information, the (real) practice of prioritizing financial disclosure, we should now look at the motivations on which stakeholders base their decision-making.
2.2. Information Needs for Decision-Making
Broadly speaking, government, beneficiaries, private donors, board members, CEO and other managers, volunteers and society, in general, are the stakeholders identified in the literature [
12,
25,
29]. From a functional point of view, each of them needs information: executives for decision-making, social workers for professional development, target groups for service improvement, funders for resourcing, regulators for accountability and society for legitimacy. From the broadest perspective of impact investment [
5], as investors awaiting social performance, all of them are expected to make their decisions based largely on non-financial information (i.e., activities, projects and impacts). However, behind the philanthropic motives, there are also particular reasons that justify the different behaviours of the stakeholders. Basically, the studies explore the behaviour of donors and managers. Less interest is given to beneficiaries (as receivers of the activities and projects funded by donors) [
29].
Research on the motivations of donors has attracted a great deal of attention. The studies highlight the existence of a wide range of factors behind the decision to donate. These factors can be classified as (a) factors of individuals and (b) factors of the organisation. With regard to the former, Schloderer et al. [
32] stressed the importance of sociodemographic characteristics (gender, age, education and income). In this vein, Kottasz [
33] points out that the higher the individual’s education level, the higher the probability that he or she will make a donation. Mesch et al. [
34] show that women are more altruistic and more likely to donate than men. Other papers ([
35,
36]) show that younger individuals are more likely to donate than older people. Bekkers and Wiepking [
37] identify eight mechanisms as the most important forces driving donations (individual donors): awareness of need, solicitation, costs and benefits, altruism, reputation, psychological benefits, values and efficacy. Epstein and Yuthas [
5], point to four investment returns that motivate investors: identity (reciprocity, satisfaction and reputation), process (knowledge, experience and relationships) and financial and social impact (societal and environmental).
As regards organisational factors, Scholderer et al. [
32] highlighted the importance of the organisation’s reputation. Parsons [
4,
14] showed evidence of the role of efficiency, effectiveness, financial stability and financial accounting information when making a donation decision. Trussel and Parsons [
38] added that donations also depend on both the reputation of the organisation and the amount of information provided to donors. Harris and Neely [
39] found evidence that donors incorporate third-party rating information (based on financial measures) into their donation decision process, and nonprofits with consistently good ratings receive higher donations. Nevertheless, other researchers such as [
40] considered other aspects to be of greater utility to donors, such as familiarity, word of mouth or the visibility of the nonprofit in the community. Yan and Sloan [
41] focused on the interaction between employee compensation and financial performance on donations and found that high compensations have a detrimental effect on donations except when financial performance is strong. Calabrese [
42] showed that donations are also sensitive to the accumulation of wealth, so future contributions are negatively affected when wealth is perceived as excessive.
As can be seen, the vast majority of these studies on organisational factors underlying the decision to donate are based on financial information available in financial reports. This provides clear evidence of the utility of financial information in the donation decision process. In fact, the influence of this information is so significant, or at least managers perceive it that way, that they feel encouraged to manage financial disclosures in order to increase donations [
11,
12,
13,
43]. Nevertheless, few studies have addressed donation decision-making with non-financial data and their results are also inconclusive [
14]. Within this field, hardly any studies have used data about the activities, projects and impacts that meet the needs of beneficiaries, even though they represent the core of the organisation. This research attempts to fill this gap.
Research on donors’ perceptions reveals their interest in both financial and non-financial information [
4,
14,
16]. Waniak-Michalak and Zarzycka [
15] showed that Polish donors consider information about the organisation’s goals and descriptions of its projects to be more useful than financial information. Saxton et al. find [
17] a positive relationship between the level of donations made to US non-profits and the quantity of information these organisations provide through the web. These authors point out that the non-financial information disclosed (mission, vision, goals, strategic plans, outputs or other performance) is positively linked to donations, whilst no such relationship has been evidenced for financial information. In the same vein, Leardini et al. [
18] find a similar association for US environmental nonprofits. However, these works take the disclosed information as a whole. They do not consider any kind of information about the segments that compound this information. In particular, they do not use information about activities and projects undertaken by the organisation. Therefore, empirical evidence that proves the influence of the information about activities and projects and their impacts on the donors’ decision-making is lacking. The question is therefore clear: To what extent is non-financial information on activities and projects useful to donors?
2.3. Individual, Private and Public Donors
Organisations have stakeholders with different interests and objectives [
44,
45], which accounts for different information needs for decision-making. This diversity is also evident within the same group, as is the case of donors [
13]. Donation decision-making differs depending on the willingness and ability of donors to search, interpret and judge the information disclosed. Based on this, [
13] we distinguish between two different categories: less sophisticated donors and sophisticated donors.
Less sophisticated donors tend to be individual donors, who generally have less capacity to interpret financial information. Needless to say, there are also people who donate large sums of money. However, they usually do so indirectly, through intermediaries (trusts, foundations, or, in general terms, organisations). Therefore, we consider the latter (hereinafter referred to as Private Donors) as sophisticated donors. We assume that these Private Donors are backed by a team (as are Public Donors) that can interpret and judge the information disclosed by NGOs.
For small donors, the incremental benefit to be gained from seeking information about nonprofits in order to determine where to deposit their money is relatively low; consequently, they tend to disregard financial information when it comes to deciding on their contributions [
46].
Empirical evidence on the usefulness of non-financial information for individual donors is controversial and inconclusive. Waniak-Michalak and Zarzycka [
15] point out that Polish individual donors focus on non-financial information, mainly descriptive information about objectives and projects, when selecting an organisation to donate to. On the other hand, Buchheit and Parsons [
47] and Parsons [
4] evidence that non-financial information (service, efforts and achievements reporting) has no significant influence on actual donations.
Since the evidence is not conclusive, we based our work on the contributions of [
4,
46,
47] and therefore we do not expect individual donors to incorporate detailed non-financial information in their decisions to donate money. Rather, they act on the basis of more personal and emotional factors, in line with those noted by [
37] awareness of need, solicitation, costs and benefits, altruism, reputation, psychological benefits, values and efficacy [
40], familiarity, word of mouth or the visibility of the nonprofit in the community. In accordance with the foregoing, we propose the following hypotheses:
Hypothesis 1 (H1). The amount of donations from individual donors is not related to the information disclosed about projects. Therefore, this information is not useful for less sophisticated donors.
Private Donors and Public Donors give larger amounts and usually have greater human and technical resources than small donors, which means they have a greater capacity to interpret complex financial information and can be more sophisticated in their strategies [
13]. This reasoning applies to non-financial information covering activities and projects to the full technical, financial and impact extent [
31]. Corporations, foundations and grantors of legacies are more likely to study charities before donating than other individuals [
46] and public donors are governmental agencies that must monitor nonprofits, given the public nature of the resources donated. This greater ability to process complex data is expected to allow sophisticated donors to incorporate non-financial information on activities and projects when making donations. Sophisticated donors do not want the funds provided to be wasted on high administration and advertising costs [
48].
Hypothesis 2 (H2). The amount of donations from private donors is related to the information disclosed about projects. Therefore, this information is useful for the decision-making of private donors.
Hypothesis 3 (H3). The amount of donations from public donors is related to the information disclosed about projects. Therefore, this information is useful for the decision-making of public donors.