A new study from the Kelley School of Business at Indiana University finds Nonprofit organizations increasingly are using crowdfunding campaigns not only to raise funds but also to build donors' trust.
Published in Production and Operations Management, the study, Operational Transparency on Crowdfunding Platforms: Effect on Donations for Emergency Response, identified two transparency tools that can help attract donors on crowdfunding platforms: "updates" about the work being done, a form of operational transparency; and "certification" demonstrating that the campaign benefits a 501(c)(3) Nonprofit organization, a form of conventional transparency. Based on an analysis of more than a hundred thousand crowdfunding campaigns run by Nonprofit organizations over a seven-year period, the study found that while both updates and certification helped increase donations, updates were far more effective, with each additional work-related word in an update increasing donations on average by $65.27 a month and being tagged as a "certified charity" raising funds by $22.02 a month.
According to the report, the positive impact of work-related updates — as opposed to non-operational communications such as thank-you notes — is explained by two mechanisms: keeping donors informed through frequent updates enhances their perceptions of effort on the part of the organization as well as their perceived trust in the organization. Funded by the Swiss National Science Foundation and the Kelley School of Business, the study also found that just over half of the campaigns in the sample posted at least one campaign update, while only 9 percent of the campaigns displayed certification.
Authors of the paper are Jorge Mejia, assistant professor of operations and decision technologies; Alfonso Pedraza-Martinez, associate professor of operations and decision technologies and Grainger Faculty Fellow; and Gloria Urrea, a visiting scholar of operations and decision technologies.
Mejia, the paper's lead author, noted its timeliness in light of several recent fraud cases involving charitable giving, such as the college admissions scandal and questions about the charitable status of politicians' private foundations and religious organizations.
"Our paper tackles some of these challenges head-on by providing a way to increase the transparency of these organizations online," he said.