The financial antecedents of nonprofit dissolution have not been well studied, although there is growing scholarly attention devoted to the dissolution of nonprofit organizations. Using longitudinal data on U.S. public charities from 2005 to 2015, this study employs the Cox proportional-hazards model to examine the effects of overhead costs and revenue mix on nonprofit dissolution. In particular, we find that spending on employee compensation and fundraising each has a nonlinear, U-shaped relationship with the likelihood of nonprofit dissolution. We also find that commercial nonprofits are less likely to dissolve than their noncommercial counterparts. Finally, revenue diversification has a favorable effect on nonprofits’ survival prospects. These findings provide important managerial implications for nonprofits to sustain their operations and influence in practice.

Nonprofit organizations (NPOs) rely on multiple funding sources to meet organizational needs; and, heavy reliance on any one revenue source can limit an NPO’s ability to allocate funding. As such, in this study, we examine the association between funding source and spending behavior in a national sample of NPOs from 2008 to 2012. Our sample consists of 51,812 observations from 16,035 unique NPOs. Using Tobit maximum likelihood estimation, we find that NPOs that rely on, both, restricted and nonrestricted revenue sources are more limited in their ability to spend on administrative needs, whereas donation income restricts personnel spending of compensation. Revenue diversification, though, can help NPOs overcome this limitation and can provide NPOs with greater spending flexibility. Our findings also show, however, that these results differ for NPO hospitals and universities.

Managing financial resources is one of the most important responsibilities of every organization; however, the literature still cannot provide an answer to an important question: how does financial health matter to organizational mortality, especially for nonprofit organizations? To advance our knowledge in this regard, this study empirically examines the effects of solvency, profitability, margin, and liquidity on nonprofit dissolution. Higher solvency, profitability, and margin have significant effects on reducing the likelihood of nonprofit dissolution, but liquidity does not function as a significant predictor.

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