Funding implications of normal and excessive profitability in the nonprofit sector

We study nonprofit profitability and its effect on nonprofit external funding. In a sample of over 273 thousand U.S. NPOs during 1999–2019, we find that profitability is associated with greater public support; however, when NPOs are excessively profitable, they receive fewer subsequent donations. We...

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Bibliographic Details
Published inJournal of accounting and public policy Vol. 41; no. 4; p. 106923
Main Authors Basu, Sudipta, DeVides, Zhanel, Harris, Erica E.
Format Journal Article
LanguageEnglish
Published New York Elsevier Inc 01.07.2022
Elsevier Sequoia S.A
Subjects
Donations
Donors
Excess profitability
Funding
Government grants
Health care
Health care industry
Nonprofit
Planning horizon
Profitability
Public opinion
H81
Nonprofit
Government grants
D64
Donations
Excess profitability
L31
M41
Planning horizon
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Summary:We study nonprofit profitability and its effect on nonprofit external funding. In a sample of over 273 thousand U.S. NPOs during 1999–2019, we find that profitability is associated with greater public support; however, when NPOs are excessively profitable, they receive fewer subsequent donations. We find a similar relationship, but to a smaller degree, between profitability and government funding. We infer that funders desire moderate but not overly high profitability. We also find that donors are more tolerant of normal and excessive profitability for NPOs in the healthcare industry, smaller NPOs, and NPOs with shorter planning horizons. The relationship between profitability and external funding is weaker during recession periods, with funders not penalizing excessively profitable organizations during economic downturns.
ISSN:0278-4254
1873-2070
DOI:10.1016/j.jaccpubpol.2021.106923