The Economic Consequences of Financial Audit Regulation in the Charitable Sector

46 Pages Posted: 12 Nov 2018 Last revised: 7 Dec 2021

See all articles by Raphael Duguay

Raphael Duguay

Yale School of Management; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Date Written: December 6, 2021

Abstract

I provide evidence on the effects of financial audit mandates in the charitable sector, in particular their influence on donor behavior. My empirical strategy relies on variation in size-based exemption thresholds across states and differences in size driven by the nature of charities’ activities. Consistent with audit mandates reducing donors’ reliance on charity reputation, I find audit mandates are associated with a lower concentration of donations on the largest, most well-known charities. I show this reallocation of resources allows the charitable sector to serve more diverse geographic areas and social needs. In terms of the effect on willingness to give, I document that audit mandates are associated with a higher proportion of taxpayers who donate. However, I only observe a sizable impact on total contributions in dollars for charities with high inherent information asymmetry. Collectively, these results suggest financial audit regulation reduces information frictions and thereby affects resource allocation in the market for charitable giving.

Keywords: Financial-reporting regulation, auditing, resource allocation, nonprofit organizations

JEL Classification: M42, M48, M49, L31, L38

Suggested Citation

Duguay, Raphael, The Economic Consequences of Financial Audit Regulation in the Charitable Sector (December 6, 2021). Available at SSRN: https://ssrn.com/abstract=3273498 or http://dx.doi.org/10.2139/ssrn.3273498

Raphael Duguay (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511
United States

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

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