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Goverance and Transparency of The Chinese Charity Foundations
Goverance and Transparency of The Chinese Charity Foundations
www.emeraldinsight.com/1321-7348.htm
Chinese
Governance and transparency of charity
the Chinese charity foundations foundations
Qingmei Xue
Accounting Department, Nanjing University, Nanjing, China, and
307
Yuning Niu
Nanjing University, Nanjing, China Received 19 March 2018
Revised 16 October 2018
Accepted 13 January 2019
Abstract
Purpose – The purpose of this paper is to investigate the relation between various governance mechanisms
and the transparency level by using a sample of the top 200 Chinese charity foundations on net assets.
Design/methodology/approach – Three types of governance forces are examined, including the board, the
management and the capital providers. The Foundation Transparency Index (FTI), published by Chinese
Foundation Center, is used as a proxy for the transparency level.
Findings – The evidences show that for the public foundations that can elicit fund from the public, providing
compensation to the foundation managers could encourage them to increase the transparency level.
Furthermore, the sophisticated donors also represent a useful governance force. For the non-public
foundations that can only seek donors through private contacts, getting more members in their supervisory
board and having more government grants are helpful in improving their transparency. The results are
robust even after controlling for lagged FTI and other characteristics of foundations. And the transparency
level is positively associated with the international connections for both types of foundations.
Research limitations/implications – This research is based on a limited sample. The results can hardly
generalize to the other smaller foundations. However, the results are still meaningful for to the legislators,
regulators and managers of Chinese charity foundations. Because the result implies that the overseas donors
are effective monitors that could improve the foundation transparency, the newly published law may weaken
this governance force.
Originality/value – This is the first paper that studies the governance of Chinese charity foundations. By
using a third-party index to proxy for the transparency, the results complement existing literature.
Keywords Transparency, Governance, NPO
Paper type Research paper
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
The authors thank Ning Jia, Haiyan Zhou (Editor), Yijiang Zhao (Associate Editor), two anonymous
reviewers and participants at the 2016 Asian Review of Accounting Conference for their helpful Asian Review of Accounting
Vol. 27 No. 2, 2019
comments and assistance. The authors also thank Bao’an Chen, Yi Zhang, Ruofan Qian and many pp. 307-327
other students in Nanjing University for collecting part of the data. The work of this paper was © Emerald Publishing Limited
1321-7348
supported by the 2014 research grant of Nanjing University. DOI 10.1108/ARA-03-2018-0057
ARA Charity Transparency Report 2011, more than 90 percent of respondents said they were not
27,2 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
308 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 (Foundation Transparency Index (FTI): explanations are in Appendix 1), which
provides us a unique opportunity to study the determinants of transparency in the Chinese
charity foundations. Therefore, we use FTI as a proxy for transparency. And we also use a
self-constructed index as robust test following previous research (e.g. Gálvez Rodríguez et al.,
2012; Saxton et al., 2014).
After controlling for the possible endogeneity problem, we find that the executive board
size is not significantly related with the transparency level. It is consistent with prior
research because boards may be dominated by insiders and could seldom play governance
role (Fama and Jensen, 1983a). We find that whether the foundation could receive foreign
donation is positively correlated with the transparency level, suggesting a possible spillover
effect of good governance from overseas institutional donors.
The results also indicate that the effective governance mechanisms are different for
public and non-public foundations. The public foundations have the privilege of raising
fund from the public. However, it is not easy to register as a public foundation. We find that
the government connection of management might be detrimental to the non-public
foundations, but not necessarily for the public ones. For the public foundations, providing
management compensation and getting more restrictive revenue is helpful in improving
their transparency. For the non-public foundations, getting more members on supervisory
board and having more government grant are two useful governance mechanisms.
Our contribution is threefold. First, we confirm that the external fund providers, as
government and donors, are effective in monitoring NPOs (Gaver and Im, 2014). But our study
complements Gaver and Im’s (2014) finding by providing further evidence that not all donors
are effective in improving the transparency, and only sophisticated donors and overseas donors
could accomplish this task. Second, a number of studies have examined the determinants
of voluntary disclosure of financial information (e.g. Behn et al., 2010; Gordon et al., 2002)
or voluntary website disclosure (e.g. Gálvez Rodríguez et al., 2012; Saxton et al., 2014). Our
investigations contribute to the existing NPO transparency literature by applying a third-party
ranking FTI as a proxy for transparency. This rating is public available and more objective
than self-constructed transparency measurements. Third, to our knowledge, this is the first NPO
study that examines the Chinese charity foundations’ governance. As China has become the
second largest economy, the Chinese charity market is also important.
The results of this study might be of interest to NPO managers and regulators, especially
those facing serious governance and transparency problems. With the new Charity law in
effective, such NPOs would face severe punishment. In the meanwhile, understanding the
governance of Chinese charity foundations is also important for overseas donors. However,
the Law on Administration of Activities of Overseas Nongovernmental Organizations came
into force on January 1, 2017. It is expected that this law may limit the overseas donations
NPO could get[3]. And the spillover effect of good governance may disappear as well. This Chinese
research finding may have some implications to the donors. By providing restrictions to the charity
donation, the charity foundations will provide more and better information. foundations
2. Institutional background
Since Chinese economic reform in 1970s, NPOs have advanced in leaps and bounds. The number
of charity foundations grew from zero in the late 1970s to 5,607 in September 2015, with an 309
increasing rate of 20 percent per year. A significant chapter for Chinese charity foundations was
the publication of the Regulations on the Administration of Foundations (RAF) in 2004.
It requires that the board of foundation should have 5–25 members, with maximum five years of
term period. Foundations should have a chair, the vice chair and the executive manager, none of
whom should be a current public servant. The board should have a minimum two meetings per
year. The foundations should also have a supervisory board that shall not get any salary from
the foundation. All foundations must submit an annual report to their competent authority,
which including the financial reports, the auditors’ report, the donation, program information, etc.
The foundations adopt a set of accounting standards converged with international ones. All of
the charity foundations could not have more than 10 percent of the total expenditure on
overheads[4]. However, these rules are not strictly implemented because of the “dual
management” system: RAF requires that the foundations to find a professional supervisory
organ to be its sponsor before registering with the Civil Affairs Department (CAD). However,
such organs do not actually supervise the implementation of RAF.
Another special institutional environment in China is that, as in business sector, Chinese
charity foundations are heavily influenced by the government. A large number of
foundations have their chairs or executive managers being ex-government officials. And
many foundations have a large portion of revenue from government grant. The foundations
are required to disclose this information.
Corruption has been rampant in China. NPOs are not immune from severe problems either.
In 2011, a young woman showed off her lavish lifestyle in Sina Weibo, a Twitter-like social
media, and claimed to be an official of Red Cross Society of China (RCSC). It turns out that her
boyfriend is a board member of a for-profit company related with RCSC. Together with several
other scandals, Chinese public have completely lost confidence on the charity foundations.
A report said that the majority of charitable foundations do not disclose information to
the public, although they are legally mandated to do so[5].With little transparency of their
operations, the charity foundations are shrouded behind a veil of secrecy that is lifted only
when blatant disasters occur. People believe that the credible, systematic information
disclosure would be the solution of regaining public trust. In total, 35 foundations
co-founded a Chinese Foundation Center website. They started to publish an FTI for all
registered charity foundations since 2010. The credibility of FTI is increased by the
participation of a research team from Tstinghua University. The details of FTI are
explained in part 4 and in Appendix 1. CFC is the only private NPO watch dog in China so
far. Their transparency index is not without flaw, but it is a third-party ranking which has
been acknowledged in China. Since there are no other watchdogs as in the USA (Gaver and
Im, 2014), the FTI is supposed to be a useful evaluation of the foundations’ transparency.
4. Research design
4.1 Model specification
We use the following empirical model to test our hypothesis:
FTI FTI_FINANCE=DIS=VDIS ¼ b0 þb1 BOARD SIZE þb2 BOARD MEETING
þb3 SUPERVISORY BOARDSIZE þb4 GOVERNMENT CONNECTION
þb5 COMPENSATION þb6 INTERNATIONAL þb7 RESTRICT REVENUE
þb8 DONATION REVENUEþb9 GRANTþb10 DEBT þCONTROL þei :
The dependent variable is transparency. Recent research suggests that there are three
primary dimensions of transparency: information disclosure, clarity and accuracy (Wiki:
transparency). In the case of NPOs, the most widely used measurement is a self-constructed
index (e.g. Saxton et al., 2012). But the index without weight could only measure the
information disclosure rather than clarity and accuracy, and including weights means
subjectivity. Behn et al. (2010) sent mails to NPO and requested for financial information:
those NPOs who answered them are measured as transparent. This method could not
measure the clarity and accuracy either.
We use four different indexes to measure transparency. First, and foremost, is the “China
Foundation Transparency Index (FTI)” published by Chinese Foundation Center. (CFC:
http://en.foundationcenter.org.cn/index.html). “The content of the indexes includes basic
information, financial information, project information and donation information. With full Chinese
marks of 100, basic information takes 13.2, financial information takes 24, project information charity
takes 39.2 and donation information takes 23.6. There are 41 indicators in total. The score not foundations
only depends on whether the foundation disclose the information, but also depends on where
they disclose (the website or elsewhere), and whether the information are complete. The data
sources for the indicator list mainly consist of annual reports that foundations filed according
to requests from the CAD (details of FTI could be found in Appendix 1). 313
The second proxy of transparency is the financial information score (FTI_FINANCE)
which is a part of FTI. As financial information is based on Chinese private NPO accounting
standards, and charity foundations are required to have their financial information audited. It
is a more reliable and comparable information. Many previous research also focus on financial
information transparency (e.g. Behn et al., 2010; Gordon et al., 2002). The importance of
financial accounting information for NPOs has been summarized by Hofmann and McSwain
(2013) and Parsons (2007). Therefore, we will also use financial information index as a proxy
for transparency. FTI_FINANCE[6] include 15 indicators (weights are in the bracket):
auditor’s report and financial statements (4), donation revenue (2), program spending (2), total
assets (1), net assets (1), total revenue (1), investment revenue (1), government grant (1), service
revenue (1), total expenditure (1); wages and welfares (1), overhead expense (1), program
expenses (1), administrative expense (1), financing expenses (1). The Aiyou foundation annual
report is used as a model. If the above items are available in the charity foundations’ official
website, then the score will be the weight multiply 1.2, and if disclosed in other channels, it will
equal to the weight times 0.8. If not disclosed at all, the score is 0.
Following the previous research, we also use content analysis method to construct
transparency index, and use it as a robust test. We construct the index by referring to three
sources: the Chine regulations and laws related to the charity foundations, the FTI index
and prior studies relevant to disclosures of NPOs (Dumont, 2013; Gálvez Rodríguez et al.,
2012; Gandia, 2011). Specifically, all the required disclosure items are identified, and other
items not required but suggested by literature are also included. Eventually, we come up
with a transparency evaluation list, which includes 92 items with a full score of 92. The
items are divided into four areas: basic information, governance information, project
information and financial information. Among them, compulsory disclosure is based on the
law and regulations, for example, Accounting System for Private Not-for-profit
Organizations and Information Disclosure Requirement for Foundations. The rests are
voluntary disclosure items. We do not use weight for each item, as Robbins and Austin
(1986) find that a simple index is not different from a complex index. DIS is the score of all
indicators, while VDIS is the total score of voluntary disclosure.
The ten independent variables are based on our discussion in literature review. Our
major interests are the governance variables on the board, the management and the capital
provider. Board size is the number of directors in board. Board meeting is defined as the
number of meetings hold in the current year. Supervisory board size is the number of
supervisors in the board. Government connection is a dummy variable with a value of 1 for
foundations that having chairman or CEO from government and 0 for others. Compensation
is also a dummy variable with a value of 1 if a foundation discloses salary of chairman and/
or CEO which are not null, zero otherwise.
The four capital provider monitoring ratio that have governance functions are the
restrict revenue ratio, the ratio of donation to total revenue and the ratio of government
grants to total revenue. International is a dummy variable with a value of 1 for foundations
receiving overseas donations and 0 otherwise.
We also control variables which have been found correlated with transparency in
previous literature. For example, both Behn et al. (2010) and Saxton et al. (2012) find
organization size is positively related to transparency. Weisbrod and Dominguez (1986)
ARA indicate that the older NPOs have better reputation, to withhold that reputation, more
27,2 disclosure would be needed. We also control the location where the foundation was
registered. The unbalanced development in China implies that the charity market is not
equally efficient in different region. We use the market index provided by Fan et al. (2010) to
proxy the developing level of the different area. A national foundation may have different
information disclosure practice from a local foundation, thus we also control this dummy
314 variable. As indicated earlier, NPOs are subject to bright line rules on the program
expenditure. We expect NPOs which violate such bright line rules may not want to disclose
the fact. Thus, the violation of rule will be negatively related with transparency. Kitching
(2009) suggests that high-quality audit will help the NPOs to gain public trust because audit
improves the reliability of information. Therefore, we expect those foundations audited by
top 100 accounting firms would be more transparent. Year and Industry are also controlled.
We summarize our variables in Table I.
Variable Measurement
FTI CFC
FTI_FINANCE CFC
DIS Self-construct
VIDS Self-construct
Board and management BOARDSIZE Number of directors in board
BOARDMEET Times of meeting per year
SUPERSIZE Number of directors in the supervisory board
GOVECONN 1 if the chair or manager is former government official;
0 otherwise
COMPENSATION 1 if the chair or manager is compensated; 0 otherwise
Capital provider INTERNATIONAL 1 if received overseas donation; 0 otherwise
RESCTRICTREV limited revenue/total revenue
DONREV Donation revenue/total revenue
GRANT Government grant/total revenue
DEBT Debt/assets
Control lnSIZE Ln(total assets)
VIOLATE 1 if violate regulation; 0 if not
AUDIT 1 if auditors are top 100 firms; 0 otherwise
AGE Number of years since registered
NATIONAL 1 if national; 0 if local
LOCATION Fan and Wang (2011)’s local market index
Table I. PUBLIC 1 if public; 0 if non-public
Variables INDUSTRY 1 if education; 0 otherwise
Even though we choose the largest foundations, they are not necessarily the most Chinese
transparent ones. There are many missing information and errors. For example, total assets charity
minus total liabilities do not equal to the reported net assets. Some NPOs report negative foundations
administrative expenses and (or) fundraising expenses. After deleting the missing
information, our observations are reduced to 887. We winsorize all the continuous variables
by year at the 1 percent levels to mitigate the influence of outliers.
As there are many errors in NPO’s financial information, to further check our results, we 315
winsorize all continuous variables at the 5 percent level as robust test. The self-constructed
index was made and evaluated based on all information we can find online; thus, we only
have one-year data for robust test.
(continued )
317
charity
Chinese
foundations
Table III.
Pearson correlation
of major variables
27,2
318
ARA
Table III.
DONR 1
GRANT −0.295*** 1
VIOLA −0.254*** 0.071** 1
DEBT −0.016 0.007 0.243*** 1
AUDIT 0.088*** 0.058* −0.080** 0.088*** 1
AGE −0.053 0.120*** 0.116*** 0.073** 0 1
NATIO 0.170*** 0.035 −0.126*** 0.025 0.438*** 0.020 1
LOCA 0.033 −0.044 −0.025 −0.033 −0.011 −0.005 −0.021 1
PUBLIC −0.086*** 0.242*** 0.307*** 0.183*** 0.005 0.535*** 0.042 −0.092*** 1
lnASSE −0.013 0.066* −0.177*** −0.607*** 0.051 0.152*** 0.098*** 0.041 −0.078** 1
Notes: p-values in parentheses. *po 0.10; **p o0.05; ***p o0.01
FTI FTI-FINANCE
Chinese
Full sample Public Non-public Full sample Public Non-public charity
FTI (1) (2) (3) (4) (5) (6) foundations
BOARDSIZE 0.1529 0.4011** 0.0151 0.0684 0.1556** 0.016
−0.314 −0.034 −0.944 −0.217 −0.034 −0.847
BOARDMEET −0.5253 −0.5242 −0.8422 −0.4446 −0.137 −0.6456*
−0.549 −0.738 −0.393 −0.166 −0.811 −0.061 319
SUPERSIZE 1.4284** 0.7219 1.9065* 0.2969* 0.1961 0.5261*
−0.041 −0.45 −0.056 −0.098 −0.465 −0.061
GOVECONN 0.5129 2.3439 −3.2882 0.0213 0.7943 −2.1069
−0.836 −0.433 −0.392 −0.981 −0.439 −0.176
COMPENSAT 5.4026** 4.4332* 6.5514* 0.8538 0.2444 1.5935
−0.014 −0.066 −0.088 −0.286 −0.796 −0.236
INTERNATI 11.9011*** 15.2695*** 10.6760*** 4.5193*** 5.7435*** 3.9659***
0 0 0 0 0 0
RESCTRIV 3.5725* 6.2399** 0.7473 1.27 1.7989* 0.9346
−0.087 −0.015 −0.823 −0.139 −0.098 −0.502
DONREV 6.5074*** 5.0217* 4.3293 2.0011** 2.3123 0.3131
−0.004 −0.068 −0.243 −0.038 −0.132 −0.827
GRANT 11.5296* 6.1984 61.3455*** 1.5416 0.5932 11.8890***
−0.062 −0.252 0 −0.451 −0.787 0
DEBT 0.0015 0.0004 −21.4508 0.0007 0.0006 −8.8695
−0.5 −0.841 −0.16 −0.333 −0.445 −0.329
VIOLATE −3.7538** −2.1875 −7.3329** 0.1983 0.3443 −0.4053
−0.041 −0.304 −0.024 −0.775 −0.72 −0.673
AUDIT 7.5717*** 7.9192*** 6.3491* 2.1764** 2.1020** 1.6719
−0.002 −0.009 −0.062 −0.012 −0.047 −0.154
AGE 0.1757 0.2841* −0.2482 0.0837* 0.1231** −0.0963
−0.195 −0.058 −0.443 −0.096 −0.035 −0.372
NATIONAL 8.8976*** 6.6780* 7.8632** 2.7223*** 2.1215 2.2210*
−0.001 −0.079 −0.042 −0.004 −0.104 −0.088
LOCATION 1.5132** 1.0832 2.0459** 0.4182* 0.3131 0.5565*
−0.042 −0.258 −0.032 −0.074 −0.294 −0.08
PUBLIC −3.1814 −1.2437
−0.209 −0.164
LnASSETS 1.1668 0.8894 2.7975* 0.6561** 0.5684* 1.2362**
−0.178 −0.314 −0.064 −0.038 −0.072 −0.027
intercept −2.1521 −3.3785 −27.7398 22.8934*** 20.6582*** 15.4816
−0.895 −0.857 −0.314 0 −0.003 −0.121
Year Controlled Controlled Controlled Controlled Controlled Controlled
VIFo 2.54 2.63 2.91 2.53 2.63 2.93
N 887 453 434 873 449 424
R2 0.422 0.526 0.368 0.696 0.691 0.728
Table IV.
Adj. R2 0.408 0.504 0.338 0.689 0.677 0.714 OLS regression with
F 21.4899 15.6656 12.0951 34.8328 20.2525 27.8184 FTI and FTI-
p 0 0 0 0 0 0 FINANCE as
Notes: p-values in parentheses. *po 0.10; **p o0.05; ***p o0.01 transparency proxy
supervision is useful for the public foundations. As expected, government is also an important
governance force: those who received government funds are 11.53 percent more transparent
than those who did not receive, but such governance is only significant for the non-public
foundations. The overall donors are useful governance also, but creditors are not, as expected.
Taken together, the fund providers are effective monitors, especially the overseas donors. For
public foundations, the sophisticated donors are the effective monitors, and for non-public
foundations, the government is the effective monitors.
ARA In column (4)–(6), we show the OLS regression result with financial information index
27,2 (FTI_FINANCE) as the proxy of transparency. The results are generally similar to overall
transparency (FTI), except that compensation to management is not significantly related
with the financial information transparency. This may suggest that compensating
management is not useful, as they are mostly not financial experts and their efforts have
little impact on the financial transparency.
320 As to the control variables, violation is negatively correlated with FTI, indicating that the
foundation violating regulations incline to conceal the fact. As expected, the high-quality
audit is positively correlated with transparency. And the national foundations are more
transparent. The foundations in more developed areas are more transparent. The larger
foundations have better financial information transparency.
5.3 Endogeneity
Reverse causality is a major concern for most governance studies because it is possible that
transparency may be the reason that the foundations get better governance. Unobserved
characteristics could cause the correlation between transparency and governance variables.
Following Harris et al. (2015), we include lagged FTI in the model to address the endogeneity
problem. The results are shown in Table V. The results are very similar to the above tests.
Again, board governance is not a useful mechanism in general. But with more members
in the supervisory board, the non-public foundations are more transparent. Management
compensation is positively correlated with transparency in the public foundations,
suggesting that providing managerial incentive is effective for the public foundations.
However, a negative significant correlation is shown between government connection and
financial transparency, suggesting that having a former government official on board may
be detrimental to the foundations’ financial transparency.
For capital providers, the results are the same with the main test. The international
connection is significantly associated with FIT and FTI_FINANCE. For the public
foundations, restricted revenue is positively correlated with FTI, and for the non-public
foundations, government grant is positively correlated with FTI and FTI_FINANCE.
In conclusion, the governance mechanisms are slightly different between the public
foundations and the non-public foundations. Board governance is generally not effective, but
international connection is useful in improving the transparent, which might represent a
split-over effect of governance from the overseas institutional donors. For the public
foundations, other useful governance mechanisms include management compensation
incentive plan and the monitor from sophisticated donor. For the non-public foundations, other
useful governance mechanisms are members in the supervisory board and government grant.
5.4 Robust test: OLS regression with DIS and VDIS as transparency proxy
We did two robust tests. First, we run our model again with self-constructed transparency
index. The self-constructed DIS and VDIS were constructed using data in 2014. Therefore, we
could only use a one-year sample to test. The regression results are presented in Table VI. The
column (1)–(3) show the factors that impact comprehensive transparency. The column (4)–(6)
show the results of voluntary disclosure index. The results are similar with the main tests, but
are less significant. This might because of the limited observations.
Then, we winsorize the continuous variables at 5 percent to control for the errors of
financial information. The results shown in Table VII are similar to those in Tables IV and V.
6. Conclusions
The charity foundations need public trust to survive. Recent scandals triggered a growing
credibility crisis in China. Western research suggests that transparency is correlated with
FTI FTI-FINANCE
Chinese
Full sample Public Non-public Full sample Public Non-public charity
FTI (1) (2) (3) (4) (5) (6) foundations
FTI(FFTI)t−1 0.6880*** 0.6503*** 0.6903*** 0.2087*** 0.1231*** 0.3221***
0 0 0 0 0 0
BOARDSIZE 0.045 0.1521 −0.0651 0.0503 0.0900* −0.0065
−0.638 −0.211 −0.635 −0.181 −0.062 −0.897 321
BOARDM −0.0707 −0.9685 −0.0273 −0.2568** −0.6879* −0.1815**
−0.805 −0.357 −0.901 −0.037 −0.062 −0.026
SUPERSIZE 0.209 0.0233 1.3132** 0.0434 0.0118 0.3656*
−0.341 −0.794 −0.046 −0.511 −0.752 −0.067
GOVECONN 0.6736 1.9788 −2.3287 0.1259 1.1595* −2.0363**
−0.582 −0.252 −0.146 −0.814 −0.1 −0.013
COMPENS 2.5384** 2.7732* 2.8917 0.7416 0.7356 0.605
−0.035 −0.069 −0.121 −0.1 −0.203 −0.278
INTERNAT 3.8295*** 4.4589** 5.4517*** 1.7446*** 2.6562*** 1.6836***
−0.002 −0.021 −0.001 −0.001 −0.001 −0.006
RESCTREV 2.6867** 4.4951** −0.5098 0.9102 1.1069 0.6338
−0.041 −0.014 −0.791 −0.104 −0.12 −0.475
DONREV 2.9162* 2.2384 1.8814 0.9742 1.0564 0.0285
−0.075 −0.271 −0.51 −0.123 −0.224 −0.977
GRANT 7.4805* 4.9054 18.5094* 1.517 0.6079 3.2293***
−0.065 −0.251 −0.062 −0.401 −0.78 −0.001
DEBT 4.3539 2.8342 −19.2390** 1.2519 1.4712 −3.5939
−0.133 −0.413 −0.02 −0.245 −0.211 −0.293
VIOLATE −2.2015 −1.6065 −4.0668 −0.7739* −0.7196 −0.7535
−0.105 −0.31 −0.146 −0.084 −0.184 −0.335
AUDIT 0.7466 2.0029 −0.2217 0.6142 0.8779 −0.0371
−0.511 −0.214 −0.891 −0.224 −0.222 −0.951
AGE −0.0668 −0.0052 −0.2882* 0.0231 0.0501 −0.0293
−0.401 −0.958 −0.097 −0.456 −0.171 −0.55
NATIONAL 2.0536 0.4111 2.4387 0.502 0.1995 0.218
−0.136 −0.841 −0.167 −0.357 −0.81 −0.73
LOCATION 0.8020* 0.8249* 0.9797* 0.4523*** 0.5290*** 0.4356**
−0.057 −0.09 −0.066 −0.002 −0.008 −0.016
PUBLIC −0.7099 −0.4185
−0.626 −0.464
LnASSETS 0.5919 0.4648 2.2742** 0.3557** 0.3215** 1.0225***
−0.101 −0.219 −0.016 −0.013 −0.029 −0.007
intercept −1.1948 0.3978 −30.4806* −6.8910** −4.3642 −22.3749***
−0.863 −0.961 −0.07 −0.013 −0.206 −0.001
Year Controlled Controlled Controlled Controlled Controlled Controlled
VIFo 2.95 2.78 3.94 3.94 3.71 5.64
N 696 359 337 676 354 322
2
R 0.678 0.735 0.641 0.401 0.466 0.448
2
Adj. R 0.668 0.719 0.618 0.382 0.433 0.411 Table V.
F 128.8854 88.4677 58.9209 26.7733 22.0067 30.3241 Endogeneity:
p 0 0 0 0 0 0 including lagged
Notes: p-values in parentheses. *po 0.10; **p o0.05; ***p o0.01 dependent variable
donation, and improving transparency is one way of restoring public trust. But what
determine the transparency of a Chinese charity foundation? We answer this question by
investigating the association of governance mechanisms and transparency of the top 100
public and 100 non-public Chinese charity foundations. We examine the correlation between
existing government mechanisms and transparency index. Consistent with prior studies
(Gaver and Im, 2014), our findings suggest that in the Chinese charity foundations, the
ARA DIS VDIS
27,2 Full sample Public Non-public Full sample Public Non-public
(1) (2) (3) (4) (5) (6)
capital providers play a better monitoring role than the board. Specifically, we find that
internationalization is an important governance mechanism in terms of improving
transparency. Managerial Incentives and sophisticated donor monitoring could be
important in improving transparency in the public foundations and government grant
are useful mechanisms in the non-public foundations. These findings contribute to the
existing literature on NPO governance and transparency.
This research provides some implication to NPO managers as well. The finding implies
that providing compensation may motivate managers to improve transparency in
FTI FTI-FINANCE
Chinese
Full sample Public Non-public Full sample Public Non-public charity
FTI (1) (2) (3) (4) (5) (6) foundations
BOARDSIZE 0.1062 0.3796** −0.0724 0.042 0.0905* −0.0032
−0.456 −0.027 −0.735 −0.3 −0.079 −0.96
BOARDM −1.0528 −0.2359 −2.1216 −0.4059 0.0969 −0.8137**
−0.351 −0.884 −0.146 −0.184 −0.818 −0.042 323
SUPERSIZE 1.1184 0.1734 2.2273* 0.0838 0.0795 0.346
−0.189 −0.894 −0.091 −0.678 −0.789 −0.31
GOVECONN 0.5813 2.9664 −2.8204 0.2606 1.2421* −1.5689
−0.807 −0.275 −0.434 −0.684 −0.092 −0.171
COMPENS 5.5907*** 4.7823** 5.8519 0.9481* 0.7262 0.9277
−0.009 −0.038 −0.119 −0.097 −0.279 −0.317
INTERNAT 11.6806*** 14.5554*** 10.8977*** 2.7338*** 3.5012*** 2.5412***
0 0 0 0 0 −0.001
RESCTREV 3.5329* 5.8740** 0.0682 1.1618* 1.2091* 0.8871
−0.077 −0.015 −0.984 −0.054 −0.08 −0.383
DONREV 5.8220*** 5.1858** 3.3433 1.5040** 1.8319* 0.2092
−0.005 −0.039 −0.332 −0.024 −0.075 −0.839
GRANT 24.9896** 14.0694 97.8250*** 6.1409** 4.4024 18.9080***
−0.016 −0.108 0 −0.037 −0.14 0
DEBT 1.0321 4.5882 −22.4387 0.1374 2.7886 −8.3087
−0.903 −0.582 −0.168 −0.953 −0.24 −0.11
VIOLATE −3.4972** −2.3699 −6.5302** 0.0639 −0.2512 0.141
−0.041 −0.231 −0.029 −0.893 −0.702 −0.837
AUDIT 6.8847*** 6.9048** 6.1317* 1.3106** 1.1645 0.9659
−0.004 −0.021 −0.065 −0.038 −0.166 −0.253
AGE 0.1177 0.2185 −0.1782 0.0408 0.0855* −0.0933
−0.38 −0.136 −0.556 −0.28 −0.05 −0.233
NATIONAL 9.0438*** 6.3928* 8.8169** 1.9218*** 1.2278 1.7827**
−0.001 −0.085 −0.015 −0.006 −0.226 −0.045
LOCATION 1.8902** 1.6136* 2.3518** 0.4284** 0.4996** 0.4283
−0.012 −0.091 −0.027 −0.036 −0.047 −0.149
PUBLIC −2.8324 −1.4730**
−0.248 −0.024
LnASSETS 2.2449* 2.4904* 3.0871* 0.7892** 0.7034 1.4472***
−0.084 −0.098 −0.086 −0.03 −0.102 −0.007
Intercept −22.6486 −36.4164 −32.1525 18.0043*** 13.8338 10.524
−0.342 −0.208 −0.322 −0.006 −0.106 −0.261
Year Controlled Controlled Controlled Controlled Controlled Controlled
VIFo 2.8 2.83 3.4 2.8 2.97 3.44
n 887 453 434 873 449 424
R2 0.438 0.551 0.376 0.78 0.785 0.799
Adj. R2 0.424 0.53 0.345 0.774 0.775 0.789 Table VII.
F 23.6461 19.4924 34.486 99.4168 66.6204 84.7215 Robust test:
p 0 0 0 0 0 0 winsorized continuous
Notes: p-values in parentheses. *po 0.10; **p o0.05; ***p o0.01 vars at 5 percent
Notes
1. In the USA, there are United Way CEO fraud and Ponzi Scheme of Baptist foundation of Arizona;
in China, there are Red cross and Guo Meimei scandal, Soong Ching Ling Foundation, etc., which
provide loan to insiders.
2. www.chinadaily.com.cn/opinion/2016-12/24/content_27758089.htm
3. www.ft.com/cms/s/0/0d5a0408-0825-11e5-95f4-00144feabdc0.html#axzz40ItA57T5
4. According to Feng (2015), the average administrative expenditures of all Chinese foundations
stand at only 2.07 percent at present; he concluded that is because the Chinese foundation sector is
at its initial stage and there is a lack of full-time staff.
5. http://en.foundationcenter.org.cn/html/2013-01/59.html
6. The details could be obtained from CFC website.
7. www.ft.com/content/fab2de32-ce53-11e6-864f-20dcb35cede2
8. http://ftien.foundationcenter.org.cn/interpretation.html
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1. Overview
The China Foundation Center (CFC) is a legally registered public charity described in the regulation of
Ministry of Civil Affairs in China. It is the world’s leading source of China foundation information for
shareholders in social sector. We combine industry expertise with innovative technology to deliver
critical information to leading decision makers in media, corporate responsibility, research institute,
foundations, government and donors, powered by the world’s most comprehensive Chinese foundation
database. Its mission is to bring transparency to philanthropic markets through access to the highest
quality data, news and analytics to enhance bigger social impact of philanthropy.
Foundation Transparency Index (FTI) is the proactive solution of CFC to set a new standard for the
ethical conduct of foundations in China. FTI ranks all over 2700 Chinese foundations against a
remarkably comprehensive checklist of 47 “transparency indicators,” The index will band foundations Chinese
according to the level and quality of publically disclosed information about their activities, finances charity
and governance to meet growing demands for transparency in the digital age.
CFC updates the FTI ranking according to statistic of CFC’s foundation database every week to
foundations
illustrate the status quo of transparency of foundations.
where:
• FTIn: the transparency score of foundation n.
• n: the number of foundations, which is 1, 2,3,4 ,…, 4,700 ,…, 4701…
• i: the number of indicators, which is 1, 2, 3 ,…, 39, 41.
• Ti: true, if the foundation disclose the indicator I, which is 0 or 1.
• Wi: weight, the weight of indicator I, which is between 1 and 6
• Si: source, the channel of information disclosure, which, if 1.2, represents foundation website, or
0.8, which means other channel.
• Ci: coverage, the percentage of annual giving the foundation tells clearly. The value of Ci is 1
when calculating the score of each indicator except seven project data indicators. It is decided
by the ratio of aggregate expense of each project and annual giving in P&L statement and
description of each project.
Corresponding author
Qingmei Xue can be contacted at: xueqingmei@gmail.com
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