Which Nonprofit Organizations Borrow?


  • Dwight V. Denison is Associate Professor of Public and Nonprofit Finance in the Martin School of Public Policy and Administration at the University of Kentucky. He can be reached at dwight.denison@uky.edu.


The tax benefit, bankruptcy value, and pecking-order theories of corporate capital structure are discussed in context of nonprofit organizations. A bivariate probit model shows that coefficients differ between models meaning mortgages and tax-exempt bonds are not equivalent forms of debt. Organizations with proportionally more program revenues, contributions, total assets, total revenues, and executive compensation are more likely to have a mortgage. Nonprofits that rely on special event fund-raising or contributions have a lower probability of using bond financing. The use of debt is also influenced by the nature of the organization's mission as measured through the NTEE classification.