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Related Experiment Videos

Nonprofit equity: a behavioral model and its policy implications.

H P Tuckman1, C F Chang

  • 1Memphis State University, TN.

Journal of Policy Analysis and Management : [The Journal of the Association for Public Policy Analysis and Management]
|December 4, 1992
PubMed
Summary

Nonprofit leaders are motivated to build financial reserves (equity). While not currently jeopardizing tax-exempt status, excessive equity accumulation may not serve the public interest.

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Area of Science:

  • Nonprofit Management
  • Behavioral Economics
  • Public Administration

Background:

  • Nonprofit organizations operate under the assumption that decision-makers are incentivized to generate and retain financial surpluses.
  • Understanding the drivers of nonprofit financial behavior is crucial for assessing organizational sustainability and societal impact.

Purpose of the Study:

  • To investigate the incentives for nonprofit decision-makers to accumulate organizational equity.
  • To develop and test a behavioral model explaining the demand for equity in nonprofit organizations.

Main Methods:

  • A behavioral model was developed based on the premise that both program outputs and organizational equity provide satisfaction to nonprofit decision-makers.
  • A demand function for equity was derived from the model.

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  • The derived function was applied to a national sample of 6,168 charitable nonprofits from IRS data for the 1985 tax year.

    • Main Results:

    • Empirical results support the hypothesis that nonprofit decision-makers intentionally plan to enhance their organization's equity.
    • Current levels of equity accumulation do not typically raise concerns regarding a nonprofit's tax-exempt status, as federal tax law presumes surpluses support the mission.

    Conclusions:

    • Nonprofit decision-makers actively pursue equity accumulation.
    • Excessive equity accumulation presents potential risks and may not align with the broader societal interests that nonprofits are intended to serve.
    • Criteria for defining and assessing excessive equity accumulation are proposed.