Thomas L. Spreen
University of Maryland School of Public Policy
4139B Van Munching Hall
7699 Mowatt Lane
College Park, MD 20742
Tel: (301) 405-4043
Institutional Affiliation: University of Maryland
NBER Working Papers and Publications
|December 2019||Balance Sheet Insolvency and Contribution Revenue in Public Charities|
with , : w26546
Using Form 990 data reported by public charities, we document significant bunching of nonprofits at near-zero net assets, the threshold for insolvency. Bunching occurs despite the fact that creditors cannot force insolvent nonprofits into involuntary bankruptcy. We show that the extent of bunching is greater among organizations that rely more heavily on contribution revenue, and that by inflating their net assets, bunching organizations are able to increase their contribution revenue relative to firms that report negative net assets. Charitable donors appear to use the net assets threshold as a heuristic for a charity's financial health; nonprofit managers, in turn, respond to the preferences of their donors.
Published: Tatiana Homonoff & Thomas Luke Spreen & Travis St. Clair, 2020. "Balance sheet insolvency and contribution revenue in public charities," Journal of Public Economics, vol 186.