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1. Introduction
We examine the association of governance and transparency in not-for-profit organizations (NPO). NPO is an important economic sector all over the world. However, the financial scandals of NPOs have been shocking the public in recent years[1]. Many people call for better governance and monitoring on NPOs (Dhole et al., 2015; Petrovits et al., 2011; Desai and Yetman, 2015; Dhole et al., 2015). As for-profit organizations, improving disclosure could mitigate agency problems and increase donations in NPOs (see Parsons, 2003 for an overview). Yetman and Yetman (2013) find that donors will reduce their donations on those NPOs that report low quality financial information. And some governance mechanisms can improve financial information quality (Yetman and Yetman, 2012). In for-profit organizations, both financial and non-financial transparency are important. Thus, we expect that good governance is also associated with the overall transparency in NPOs.
In China, the charity foundations are a new form of NPOs. They are developing at an annual rate of 20 percent. Their total assets are more than 100bn RMB (around $17bn) in 2016. However, the transparency level of Chinese NPOs is problematic. According to the China Charity Transparency Report 2011, more than 90 percent of respondents said they were not content with the information disclosed by charitable organizations in an online poll based on random samples. In 2016, a Chinese billionaire donated $115m to California Institute of Technology rather than to any Chinese universities because “Chinese universities are not transparent with donations they receive[2].” To address this issue, the Charity Law promulgated in 2016 stipulates that charities disclose all the basic information related to their operation. However, the Chinese charity foundations have many different features compared with western NPOs. The effective governance mechanisms in western NPOs may not also be useful in the Chinese charity foundations. Therefore, it is important to understand the governance factors that impact the transparency of Chinese charity foundations.
We test our hypothesis using a sample of the top 200 Chinese charity foundations based on net assets, from 2011 to 2014. Specifically, we examine the relation of various governance forces and the transparency level, including the boards, management and capital providers. Since 2010, the Chinese Foundation Center, a private NPO watch dog, published a transparency index...