Related parties, financial reporting quality, and donations

• 成果类型: Article
• 署名作者: Balsam, Steven; Harris, Erica E.; Wong, Paul
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Temple University; State University System of Florida; Florida International University; University of California System; University of California Davis
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.13048
• 发表日期: 2025
• 页码: 1652-1683
• 关键词: nonprofit; MARKETS; demand

摘要

In 2008, the IRS added several schedules to Form 990, including Schedule R, related party transactions. Utilizing Schedule R, we investigate and descriptively document the existence of related parties and the types of transactions engaged in with those related parties. Then, to provide evidence of the usefulness of these disclosures, we tie into the literature on financial reporting quality. Prior research into financial reporting quality shows that donors discount program ratios when a nonprofit organization reports zero fundraising expenses, implying that they find reporting zero fundraising expenses to be a proxy for poor financial reporting quality. A plausible reason for organizations reporting zero fundraising expenses is that a related party conducts fundraising on the organization's behalf. Consistent with this interpretation, we find that when nonprofits disclose that fundraising services are provided by a related entity, they are more likely to report zero fundraising expenses. We also find that disclosure of related party fundraising mitigates donor discounting of the program ratio when zero fundraising expenses are reported. However, we only find that this mitigation occurs in nonprofits with sophisticated donors. In sum, we find evidence consistent with donors-in particular, sophisticated donors-using disclosures provided in Form 990 to supplement the amounts recognized. Our findings demonstrate the importance of, and are consistent with the use of, these related party disclosures. On a broader level, these findings provide insight into how thoroughly donors are willing to review Form 990 to get information relevant to their donation decision.