How Do Nonprofits Fail? The Financial Causes of Organizational Dissolution

EasyChair Preprint no. 1116

Abstract

The financial antecedents of nonprofit dissolution have not been well studied, although there is growing scholarly attention devoted to the dissolution of nonprofit organizations. Using longitudinal data on U.S. public charities from 2005-2015, this study employs the Cox proportional-hazards model to examine the effects of overhead costs and revenue mix on nonprofit dissolution. In particular, we find that spending on employee compensation and fundraising each has a non-linear, U-shaped relationship with the likelihood of nonprofit dissolution. We also find that commercial nonprofits are less likely to dissolve than their non-commercial counterparts. Finally, revenue diversification has a favorable effect on nonprofits’ survival prospects. These findings provide important managerial implications for nonprofits to sustain their operations and influence in practice.

Keyphrases: Commercial revenue, Event history analysis, Organizational failure, overhead spending, revenue diversification

@Booklet{EasyChair:1116,
  author = {Jiahuan Lu and Jongmin Shon and Pengju Zhang},
  title = {How Do Nonprofits Fail? The Financial Causes of Organizational Dissolution},
  howpublished = {EasyChair Preprint no. 1116},

  year = {EasyChair, 2019}}