Revisiting the Prediction of Financial Vulnerability

Abstract

Whether or not a nonprofit organization is vulnerable to financial problems is a concern of all stakeholders of the organization. Recently, Greenlee and Trussel (2000) and Trussel and Greenlee (2001) expanded Tuckman and Chang' s work (1991) F INANCIAL vulnerability is an organization's susceptibility to financial problems. Whether or not a nonprofit organization is susceptible to financial problems is a concern of all stakeholders of the organization, because financial problems might not allow an organization to continue to meet its objectives and provide services. Over ten years ago, Tuckman and Chang (1991) wrote their seminal article on the financial vulnerability of nonprofit organizations, and they described financial ratios that might indicate a susceptibility to financial problems. Recently, Greenlee and Trussel (2000) and Trussel and Greenlee (2001) expanded Tuckman and Chang' s work to predict which organizations are vulnerable to financial problems. These models are based on comparing an organization's financial profile to those organizations that are considered financially vulnerable. This article extends the work of these authors and develops an alternative model to predict which organizations are financially vulnerable. The model is based on a sample of over ninetyfour thousand organizations, includes four financial indicators, and controls for the broad sectors to which the organizations belong.An understanding of the relationship between financial indicators and financial vulnerability should be of interest to a variety of groups. These groups include government agencies setting policies and monitoring grants and contracts, auditors conducting analytical reviews and determining the scope of audits, managers and board members working on strategic planning, suppliers and other potential creditors setting credit terms, and potential donors allocating resources (Trussel and Greenlee, 2001).

Assessing Potential Accounting Manipulation: the Financial Characteristics of Charitable Organizations with Higher than Expected Program-Spending Ratios

“…MULTIVARIATE MODEL I developed and tested a model of potential accounting manipulation using the same methodology that has been used in the financial distress prediction literature (see, for example, Greenlee & Trussel 2000;Jones, 1987;Trussel, 2002;Zavgren, 1983). I randomly chose approximately one half of the organizations in the sample (the initial sample) to develop a logistic regression model and to test the significance of this model.…”

Are the Wealthy Also Healthy? An Empirical Evaluation of the Financial Health of Chinese Foundations

“…Carroll and Stater (2008), Greenlee and Trussel (2000), Keating, Fischer, Gordon, andGreenlee (2005), andTrussel (2002) demonstrated that the diversified revenue sources decrease nonprofits' financial vulnerability. Greenlee and Trussel (2000) and Trussel (2002) proved that a high administrative cost ratio allows nonprofits more flexibility before having to shrink their program budgets. Greenlee and Trussel (2000), Hager (2001) and Trussel (2002) confirmed that greater operating margins extend an organization's capacity to maintain and improve programs.…”

“…Greenlee and Trussel (2000) and Trussel (2002) proved that a high administrative cost ratio allows nonprofits more flexibility before having to shrink their program budgets. Greenlee and Trussel (2000), Hager (2001) and Trussel (2002) confirmed that greater operating margins extend an organization's capacity to maintain and improve programs.…”

“…We use DIVERS in order to make all of the four measures add positive points to the financial health scores. In some cases, EQUITY was replaced by debt ratio (total liabilities over total assets) as in Trussel (2002). Higher debt ratio leads to higher financial vulnerability.…”

The Analysis of Amateur Sports Clubs Funding: A European Perspective

“…Other researchers (Cordery and Baskerville 2013, Greenlee and Trussel 2000, Trussel 2002), tried to identify determinants of financial vulnerability within amateur sports clubs and also found that revenue diversification plays a crucial role. In respect with these results on the effects of revenue diversifying on financial risk, we will focus, in this articles, on variables internal to the club that explain why some clubs are able to diversify their financial resources in comparison with other clubs.…”