What is it about?
Do donors penalize organizations for using debt by reducing future financial support? The results of this study indicate that donors impose a penalty on nonprofits with a higher relative interest expense to total expense ratio by reducing future contributions. However, a nonprofit’s debt load does not have a statistically significant impact on future contributions.
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Why is it important?
There are many benefits of borrowing and it is easy to understand why nonprofits borrow. However, the costs and consequences of borrowing for nonprofit organizations, while a topic of great consequence, historically has not been as well-studied in the nonprofit literature as it has been in the corporate literature and consequently is more difficult to understand.
Perspectives
Writing this article was a great pleasure and I hope that it starts a conversation between academics and practitioners about debt issuance in nonprofit organizations. While debt is not necessarily a bad thing there are hidden costs and ramifications to issuing debt.
Cleopatra Charles
Rutgers The State University of New Jersey
Read the Original
This page is a summary of: Nonprofit Arts Organizations: Debt Ratio Does Not Influence Donations—Interest Expense Ratio Does, The American Review of Public Administration, September 2017, SAGE Publications,
DOI: 10.1177/0275074017724227.
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