What are the Capital Structure Determinants for Tax-Exempt Organizations?


  • I thank Bo Becker, Murillo Campello, Dirk Hackbarth, Josh Pollet, Annette Poulsen, the seminar participants at New Mexico State University, and an anonymous referee for their helpful comments and suggestions. I thank Amy Brimer Blackwood, Pho Palmer, and Tom Pollak from the National Center for Charitable Statistics for their help with the data. I also thank the software developers from The R Project for Statistical Computing for the software that I used for parts of the statistical analysis.

Corresponding author: Department of Finance, W. P. Carey School of Business, PO Box 873906, Tempe, AZ 85287-3906; Phone: (706) 254-5716; Fax: (602) 543-6221; E-mail: gps@asu.edu.


I study the determinants of capital structure in the absence of tax incentives. I find that debt use is positively related to asset tangibility, growth, and size, and negatively related to age, liquidity, and profitability. Tax-exempt sector-specific findings indicate that debt is also positively related to the efficacy of state laws against the misuse of assets and to the percentage of decision makers that are paid and negatively related to decision-maker compensation and to charitable contributions. Religious organizations most commonly borrow from internal sources, those in education use tax-exempt bonds, while human services organizations use mortgages and notes payable.