1. Disentangling the Financial Vulnerability of Nonprofits
- Author
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Inigo Garcia-Rodriguez, M. Elena Romero-Merino, and Pablo de Andrés-Alonso
- Subjects
Actuarial science ,Leverage (finance) ,Public Administration ,Sociology and Political Science ,Strategy and Management ,media_common.quotation_subject ,05 social sciences ,Financial vulnerability ,Current asset ,0506 political science ,Market liquidity ,Multidimensional model ,Net asset value ,Debt ,0502 economics and business ,050602 political science & public administration ,Economics ,Business and International Management ,050203 business & management ,Social policy ,media_common - Abstract
This research analyzes the concept of financial vulnerability of nonprofits in depth. We review the definitions given by the prior literature, concluding that none of them is complete. We propose a definition in which financial vulnerability consists of three dimensions: operational (variation of net assets over time), leverage (relationship between total assets and debt), and liquidity (ratio of current assets to short-term debt). We use a sample of 212 Non-Governmental Development Organizations (NGDOs) from the United Kingdom to analyze these measures, observing a limited number of nonprofits simultaneously classified as vulnerable according to the different traditional concepts. Applying our proposed multidimensional model, we find that 6 % of the sample is highly financially vulnerable according to the three dimensions, and a high proportion (18 %) of nonprofits is simultaneously vulnerable in leverage and liquidity dimensions. Finally, we compare the obtained results using traditional variables and those derived from our model.
- Published
- 2016
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