Debt to Equity Levels in Polish Nonprofit Organizations

Abstract

In the research, we are considering most effective capital structure choices for Polish nonprofit entities. Capital structure is an indicator that testify about level of financial risk. Polish nonprofit organizations are important part of general social policy in Polish economy. They realize important aims in healthcare, in education and many other socially important areas. Considering efficiency of nonprofit entities, should be remembered that from the donor perspective, is important the way the managing team uses resources of the nonprofit organization and if it is used in the most effective way. The nonprofit organization efficiency should be considered in the context of the risk. The one from the most important way to be out from business is the debt to equity relation. In paper are considered relations between debt measures and efficiency measures. That relation is also illustrated for Polish nonprofit entities data.

As a result of a survey between 300 Polish non-profit organizations we propose a model that fit results of the survey to our theoretical expectations. There is difference in treating the entitlements of people who controls entities in prohibiting distribution of earnings and excess of revenues over expenses of organization: Equity type capital providers of for-profit firms can expect return money in case the business makes excess of revenues over expenses from operations. Nonprofit entities do not have right to issue stock and equity of nonprofit entities is issued by donors and persons who have no right to express control over the nonprofit organization. Equity type capital providers of nonprofit entities in case the nonprofit organization generates money or excess of revenues over expenses from operations can consider additional support for organization but have no possibility to withdraw the money previously tied in organization. In nonprofit entities there is no equity capital but nonprofit entities collect fund capital which is an equivalent of equity capital. Fund capital is collected in nonprofit entities by earning excess of revenues over expenses, that are forced by regulation as money which should be retained within the nonprofit organization. Other source of fund capital is receiving contributions from individual persons or from private or public entities and from for profit businesses. The last possibility to collect fund capital are money from grants received by nonprofit entities from governmental entities. Nonprofit entities act because expected future advantages measured by realization of ideas and mission that are expression of donors’ vision of the world. Both nonprofit and forprofit entities have an aim, which is a result of its owner preferences. For-profit entities are active because of expected future advantages measured in money, non-profit entities do their business because of expected future advantages measured by degree of realization of their mission.

Note: Acknowledgments: The presented work and results is part of monothematic cycle realized as part of grant titled: Determinants of capital structure in nonprofit organizations. The work is supported by National Science Centre, and financed from the Polish budget resources in the years 2016-2019 according to contract UMO-2015/19/B/HS4/01686 as the research project DEC2015/19/B/HS4/01686.

Keywords: equity, foreign capital, nonprofit organizations, efficiency of NGO

JEL Classification: G30, G31, D24, G32