Capital structure determinants for arts nonprofits

Abstract

Nonprofit leaders use various strategies when making financial decisions and balancing current mission fulfillment with long-term financial stability is a delicate act for nonprofit organizations. From a financial management perspective, nonprofit managers and executives looking to sustain a healthy organization must successfully manage the tension between pursuing the mission and preserving organizational and financial viability. This study explores potential factors that influence nonprofit arts organizations' decisions to issue financial debt and determine whether these organizations balance financial obligations by exercising pecking order or static trade-off decisions. We use the DataArts database and investigate whether donorrestricted endowments have an impact on financial debt of arts nonprofit organizations. Model estimates show that organizations with a donor-restricted endowment are less likely to issue debt and have lower debt ratios on average. This study finds support for both pecking order theory and static trade-off theory, which indicates that there is no one-dominant capital structure theory to explain the capital structure of arts nonprofits.

Capital Structure and Debt Maturity in Nonprofit Organizations

“…It is thus critical to analyze which type of NPOs use long-term debt before focusing on the determinants of debt level or maturity, which only makes sense when an entity has both long- and short-term debt. Following previous literature, the decision to borrow is driven by a different mechanism to the decision concerning how much to borrow (Charles et al, 2021; Jegers, 2011; Yan et al, 2009). While the decision regarding whether to borrow or not is usually maintained, the total amount of debt varies.…”

“…Therefore, when analyzing the variables associated with the long-term debt or debt maturity, it is necessary to consider that there is a problem of selection bias (see Online Methodological Appendix for further details). Following previous literature (e.g., Charles et al, 2021; Szymańska et al, 2015; Yan et al, 2009), we use the Heckman model estimation to address this problem. This is a two-stage model to first estimate the probability of whether an NPO incurs long-term debt (probit); see Equation 2—and then, considering this selection bias, to test the amount of long-term debt it borrows—see Equation 3—and the debt-maturity—see Equation 4.…”

Estrutura De Capitais Em Cooperativas Agroindustriais Do Oeste Do Paraná Através Da Visão Das Teorias De Pecking Order E Trade-Off

“…Charles, Sloan e Butler (2021) analisam os determinantes da estrutura de capital para organizações artísticas sem fins lucrativos (Charles, Sloan & Butler, 2021). O estudo encontra apoio tanto para a teoria da hierarquia quanto para a teoria do trade-off estático, indicando que não existe uma teoria de estrutura de capital dominante para organizações sem fins lucrativos artísticas.…”

Determinants of Capital Structure in Small and Medium Enterprises in Malaysia: An Exploratory Factor Analysis

“…Previous research comparing variables that influenced capital structure were also limited. Specifically, although empirical studies on capital structure determinants acknowledged Association of the Southeast Asian Nations (ASEAN) countries' economic significance (Nawi, 2015), the few existing findings on capital structure merely focused on developed economies (Charles et al, 2021;Bhaird & Lucey, 2010;Frank & Goyal, 2009;Fattouh et al, 2008;Delcoure, 2007;Sogorb-Mira, 2005;Michaelas et al, 1998;Rajan & Zingales, 1995) and far fewer studies emphasising developing countries (Nawi, 2018;Kila & Mahmood, 2008;Bhole & Mahakud, 2004;Changjiang & Huibo, 2001). Addressing these shortcomings of research on determinants of capital structure in relatively developing countries, the investigation on capital structure was carried out to determine capital structure decisions across micro, small, and medium-sized firms in Malaysia, one of Southeast Asia's developing countries.…”