Financial Vulnerability among Human Services and Higher Education Nonprofits: An Analysis of Organizational and Environmental Factors

The nonprofit sector is vitally important. Nonprofit organizations address unmet needs, foster innovation, and serve as value guardians. The sector is increasingly responsible for important social and economic functions and its survival is crucial for the countless recipients of nonprofit goods and services. Understanding the financial fundamentals necessary for nonprofit survival is the focus of this dissertation. Using the Digitized Data files, which contain IRS Form 990 information for all filing 501(c)(3) organizations from 1998--2003, this dissertation explores two research questions: (1) Can accounting ratios, used to assess nonprofit financial health, be organized into theoretically intuitive and empirically defensible constructs; and (2) What are the organizational and environmental factors that lead to nonprofit financial vulnerability?;In an attempt to answer the first research question, nine commonly used accounting ratios are organized on the basis of previous literature into one of four constructs---solvency, liquidity, profitability, and operating margin. Results from a factor analysis performed on the variables provide clear evidence that accounting ratios, routinely classified as representative of larger constructs, do not relate to one another as expected. The idea that various accounting ratios reliably and accurately measure singular underlying constructs such as solvency or profitability is a widely held and deeply entrenched notion, a notion that clearly needs rethinking in the nonprofit context.;To explore the second research question, two analyses are performed using generalized estimating equations (GEE), one on the human services subsector and one on higher education nonprofits. The results of the GEE analyses yield several noteworthy findings. First, accounting variables are not consistently significant predictors of financial vulnerability. Second, revenue variables are not as clearly related to financial vulnerability as the literature suggests. Third, environmental variables are consistent predictors of financial vulnerability. The findings here suggest that macroeconomic factors (gross domestic product and state product), community factors (median household income), as well as a nonprofit's financial prominence in their niche (revenue share), can decrease financial vulnerability. Lastly, differences in the results between the subsectors illustrate the importance of conducting research at the level of the subsector and serves as a caution against sector-wide analyses.;This research contributes to the literature in several ways, most notably by incorporating a more open systems approach to the study of nonprofit financial vulnerability with the inclusion of several environmental variables. Future studies should extend the analysis of environmental factors on nonprofit financial vulnerability by exploring these effects in other data and for additional subsectors.