Debt and mortar decisions: Nonprofit borrower (and lender) decision-making mechanisms and capital structure

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Date

2022-10

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[Bloomington, Ind.] : Indiana University

Abstract

Many nonprofits need facilities to carry out operations essential to their missions. However, facilities can be costly to acquire and maintain, and many nonprofits will face a day when their revenues and reserves are insufficient. In that situation, large nonprofits could conduct a capital campaign, but that is an untenable option for most nonprofits. If these nonprofits need facilities, they will ask themselves, “Should we borrow?” We know many do. We know nonprofit debt is linked to other financial measures, like revenue and asset size. To study these connections, we have used and adapted capital structure theories from business finance. Our findings have been interesting but persistently ambiguous. To resolve this, we have repeatedly said we need to know the causal factors behind these numbers. We need to understand how nonprofits decide to borrow. In my dissertation, I help fill in that research gap. First, to answer, “How do nonprofits decide to borrow?” I analyze case study interviews against perspectives expressed in the scholarly research and “best practices” from practitioner literature. Second, nonprofits need a lender to borrow from. To answer, “How do lenders decide to work with nonprofits?” I analyze lender interviews and “best practice” literature. Third, I study how the larger debt marketplace and other environmental factors affect nonprofit and lender decisions. My findings show that we must question our assumptions about borrower and lender decision-making mechanisms (e.g., debt’s basic definition and connotations, nonprofit/lender relationships, and what information is most important to these decision-makers). In the conclusion, I offer new testable propositions and hypotheses to aid future nonprofit debt research.

Description

Thesis (Ph.D.) - Indiana University, Paul H. O'Neill School of Public and Environmental Affairs, 2022

Keywords

nonprofit, debt, capital structure, finance, loans, qualitative methods

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CC-BY: This work is under a CC-BY license. You are free to copy and redistribute the material in any format, as well as remix, transform, and build upon the material as long as you give appropriate credit to the original creator, provide a link to the license, and indicate any changes made.

Type

Doctoral Dissertation