Social Change through Financial Innovation: Evidence from Donor-advised Funds

Abstract

I draw on new data to examine how donor-advised funds (DAFs), a fast-growing philanthropic option, relate to social progress. DAFs are distinguished by flexibility -- transforming complex assets and separating the timing of tax breaks from giving decisions. While DAFs are often classified by their sponsor type, I introduce a new classification scheme that reflects their economic purpose, including the users targeted, style and features offered, and focus of grant making. This classification reveals that the recent growth is fastest among DAFs that offer FinTech tools, liquidity transformation, and grant making focused on diversity, equity, and inclusion. Conditional correlations show that DAFs with a more innovative style of service distribute more grants to charities serving areas with high inequality, in times of greatest financial need, and with more efficient operations.

Keywords: Donor-advised funds, DAFs, Philanthropy, Nonprofit firms, Impact Investing, Innovation, FinTech

JEL Classification: G32, G24, G28