On the Capital Structure of Non‐Profit Organisations: A Replication and Extension with Belgian Data

14 Pages Posted: 24 Jan 2011

See all articles by Marc Jegers

Marc Jegers

Free University of Brussels (VUB) - Micro-Economics for Profit and Non Profit Sector (MICE)

Date Written: February 2011

Abstract

The empirical tests of non‐profit organisations' capital structure theories by Jegers and Verschueren (2006) on a sample of Californian non‐profit organisations (data on 1999) are replicated and extended for a more recent Belgian sample (844 observations pertaining to 2007). Three complementary theories to explain the presence and levels of overall debt and financial debt are examined: equity constraints, agency, and borrowing constraints. The decision to borrow and the amount to be borrowed are analysed separately. The estimations obtained reveal that both are driven by different mechanisms. After having removed outliers, the results show effective equity constraints when explaining debt levels, as observed in the Californian sample with respect to the overall amount of debt. The results also indicate an agency explanation of debt: both the decision to borrow from financial institutions, and the overall amount of (financial) debt are positively affected by the presence of a potential agency gap between board and management. In the Californian sample, the results on this were mixed. Borrowing constraints were almost never discovered, similar to the conclusions reached by Jegers and Verschueren. However, slightly reducing the sample by removing outliers makes borrowing constraints apparent. As to the control variables, size positively affects the probability of borrowing, but, for the organisations taking on debt, negatively affects the level of borrowing. As could be expected, the amount of tangible fixed assets in place is positively related to the amount of financial debt.

Keywords: nonprofit organisations, capital structure theories

Suggested Citation

Jegers, Marc, On the Capital Structure of Non‐Profit Organisations: A Replication and Extension with Belgian Data (February 2011). Financial Accountability & Management, Vol. 27, Issue 1, pp. 18-31, 2011. Available at SSRN: https://ssrn.com/abstract=1746634 or http://dx.doi.org/10.1111/j.1468-0408.2010.00513.x

Marc Jegers (Contact Author)

Free University of Brussels (VUB) - Micro-Economics for Profit and Non Profit Sector (MICE) ( email )

Brussels
Belgium
+32-2-629 21 13 (Phone)
+32-2-629 22 82 (Fax)

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