Transparency in Crowdfunding Increases Donations, Study Finds

Transparency in Crowdfunding Increases Donations, Study Finds

Humanitarian organizations increasingly are using crowdfunding campaigns not only to raise funds for emergencies but also to build donors' trust, a report from the Kelley School of Business at Indiana University finds.

Published in the journal Production and Operations Management, the report, 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) organization, a form of conventional transparency. Based on an analysis of more than a hundred thousand crowdfunding campaigns run by humanitarian 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. 

"Our results indicate that individuals and humanitarian organizations willing to start crowdfunding campaigns benefit from transparency," said report authors Jorge Mejia and Alfonso Pedraza-Martinez, assistant professors of operations and decision technologies at the Kelley School of Business, and Gloria Urrea, a visiting scholar of operations and decision technologies from the University of Colorado. "As updates have a positive effect on donations, organizations can increase funding by keeping donors informed on a regular basis about the campaign's progress."