Panel Paper: Does Future Nonprofit Financial Vulnerability Vary By Revenue/Expense Starting Point?

Thursday, November 7, 2013 : 12:10 PM
3016 Adams (Washington Marriott)

*Names in bold indicate Presenter

Teresa M Derrick-Mills, Nathan E Dietz, Brice McKeever and Sarah L. Pettijohn, Urban Institute
Since the publication of Tuckman & Chang’s (1991) seminal article, a number of studies have tried to develop indicators of financial vulnerability for nonprofit organizations. Tuckman & Chang’s article, which developed four measures of vulnerability (equity balances, revenue concentration, administrative expenses, and operating margins) was one of the first articles to use data from IRS Form 990 to predict which organizations would be able to survive a financial crisis, such as the current economic downturn known as the Great Recession, which began around 2009. Organizations that are vulnerable may be less likely to continue providing services in the future.  Since then, scholars have used Form 990 data to examine financial vulnerability of organizations by subsector (Hager 2001), and to use the measures proposed by Tuckman & Chang with a larger dataset (Carroll & Stater 2008).

Our paper extends this prior work by focusing on organizations that receive government funds, a funding source that tends to be stable but more restrictive for many nonprofit organizations. This paper will exploit a unique dataset that combines IRS Form 990 data, collected by the National Center on Charitable Statistics (NCCS), with data from a survey of human services nonprofit organizations that receive funds from government grants or contracts.  To find out which government-sponsored organizations have done the best job of avoiding financial vulnerability during the crisis, we estimate a pair of recursive models.  The first model focuses on the organization’s financial vulnerability before the Great Recession, using 2008 Form 990 data to predict whether the organization began the recession with an operating deficit, operating surplus, or in a revenue neutral position.  The second model will merge NCCS data with data from the 2010 National Survey of Nonprofit Government Contracting and Grants to predict financial vulnerability given the predictions from Model 1, information about the organization’s experience with contracts and grants, and other control variables.

Works Cited (partial list)

Carroll, Deborah A. and Keely Jones Stater. 2008. Revenue Diversification in Nonprofit Organizations: Does it Lead to Financial Stability? Journal of Public Administration Research and Theory 19: 947-966.

Greenlee, J.S., and Trussel, J.M. (2000). Predicting the Financial Vulnerability of Charitable Organizations. Nonprofit Management and Leadership, 11, 199-210.

Hager, M. A. (2001).  Financial Vulnerability among Arts Organizations: A Test of the Tuckman-Chang Measures.  Nonprofit and Voluntary Sector Quarterly, 30, 376-392.

Tuckman, H. P. and C.F. Chang. (1991). A Methodology for Measuring the Financial Vulnerability of Charitable Nonprofit Organizations. Nonprofit and Voluntary Sector Quarterly, 20, 445-460.