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Related Experiment Videos

How well is debt managed by nonprofits?

H P Tuckman1, C F Chang

  • 1Memphis State University.

Nonprofit Management & Leadership
|February 2, 1994
PubMed
Summary

Nonprofit organizations often accrue debt, with over 70% holding debt in 1986. Higher debt levels correlated with better financial health, suggesting borrowing is economically efficient for nonprofits.

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Area of Science:

  • Nonprofit financial management
  • Organizational economics
  • Charitable sector analysis

Background:

  • Limited understanding of nonprofit debt accrual and utilization.
  • Need to differentiate between productive, problematic, and deferred debt.
  • Importance of assessing debt's impact on nonprofit financial health.

Purpose of the Study:

  • To examine the prevalence of debt in U.S. charitable nonprofits.
  • To analyze the relationship between nonprofit debt and financial health.
  • To investigate the productive use of borrowed funds in the nonprofit sector.

Main Methods:

  • Utilized a representative database of 114,726 U.S. tax-filing charitable nonprofits from 1986.
  • Categorized debt into productive, problematic, and deferred types.
  • Analyzed debt levels, leverage, and their correlation with financial health indicators.

Main Results:

  • Over 70% of nonprofits held debt in 1986.
  • Debt distribution was highly concentrated among nonprofits.
  • Higher debt and leverage levels were associated with improved nonprofit financial health.
  • Debt and leverage varied significantly by nonprofit asset size and activity type.

Conclusions:

  • Borrowing appears to be an economically efficient strategy for nonprofit organizations.
  • Financially healthier nonprofits may be better positioned to utilize debt.
  • Further research is needed to fully understand the dynamics of nonprofit borrowing and debt management.

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