Financing Nonprofit Organizations

203 Pages·2020·1.117 MB·English

by  Inigo Garcia-Rodriguez (editor), M. Elena Romero-Merino (editor)

Financing Nonprofit
Organizations
The financial issues of nonprofit organizations (NPOs) have increased
their importance in recent years, especially after the last global economic
downturn. In this way, NPOs have been threatened by a reduction of
income, while their work and expenses have not decreased. In this book,
the editors bring together several topics that the academic literature has
previously addressed, connecting them to each other and evaluating
how all these issues are interrelated. Financing Nonprofit Organizations
analyzes the state of art of all these financial topics and the consequences
of the last economic crisis. It dives into the interrelations of these concepts
to suggest lines of future research and to reflect on the future of the
different sources of funding of the NPOs. It will be of interest to students,
practitioners, and researchers interested in initiating and updating their
knowledge in the growing field of the financial aspects of NPOs.
Inigo Garcia-Rodriguez is Assistant Professor of Finance at the University
of Burgos, Spain.
M. Elena Romero-Merino is Associate Professor of Finance at the University
of Burgos, Spain.
Routledge Studies in the Management of Voluntary and
Non-Profit Organizations
Series Editor: Stephen P. Osborne
University of Edinburgh, UK
Voluntary and non-profit organizations are playing an increasingly sig­
nificant role, worldwide, in the provision and management of public ser­
vices. Drawing together significant and ground breaking research, this
series will be essential reading for students of public policy and manage­
ment as well as the thinking manager. Topics covered include the man­
agement of innovation and change, financial management, performance
evaluation and management and organizational development and project
management.
Financing Nonprofit Organizations
Inigo Garcia-Rodriguez and M. Elena Romero-Merino
Also available from Routledge:
Financial Management in the Voluntary Sector
New Challenges
Paul Palmer and Adrian Randall
Strategic Management for Nonprofit Organizations
Roger Courtney
Regulating Charities: The Inside Story
Edited by Myles McGregor-Lowndes and Bob Wyatt
Philanthropy in Practice
Pragmatism and the Impact of Philanthropic Action
Ekkehard Thümler
Transfromational Leadership and Not for Profits and Social Enterprises
Edited by Ken Wiltshire, Asatha Malhorta, and Micheal Axelsen
For more information about this series, please visit: www.routledge.com
Financing Nonprofit
Organizations
Edited by Inigo Garcia-Rodriguez and
M. Elena Romero-Merino
First published 2020
by Routledge
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and by Routledge
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Routledge is an imprint of the Taylor & Francis Group, an
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© 2020 Taylor & Francis
The right of Inigo Garcia-Rodriguez and M. Elena Romero-
Merino to be identified as the authors of the editorial material,
and of the authors for their individual chapters, has been asserted
in accordance with sections 77 and 78 of the Copyright, Designs
and Patents Act 1988.
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Library of Congress Cataloging-in-Publication Data
Names: Garcia-Rodriguez, Inigo, 1987– editor. | Romero-Merino,
M. Elena, 1978– editor.
Title: Financing nonprofit organizations / edited by Inigo
Garcia-Rodriguez and M. Elena Romero-Merino.
Description: New York, NY : Routledge, 2020. | Series:
Routledge studies in the management of voluntary and
non-profit organizations | Includes bibliographical references
and index.
Identifiers: LCCN 2019049342 | ISBN 9780367211042 (hbk) |
ISBN 9780429265419 (ebk)
Subjects: LCSH: Nonprofit organizations—Finance. | Nonprofit
organizations—Management.
Classification: LCC HG4027.65 .F544 2020 | DDC
658.15/224—dc23
LC record available at https://lccn.loc.gov/2019049342
ISBN: 978-0-367-21104-2 (hbk)
ISBN: 978-0-429-26541-9 (ebk)
Typeset in Sabon
by Apex CoVantage, LLC
Contents

Acknowledgements vii
1 A Journey Through the Finance of Nonprofit
Organizations: An Introduction 1
INIGO GARCIA-RODRIGUEZ AND M. ELENA ROMERO-MERINO
PART I
Determinants of Public and Private Income 9
2 Why Do Donors Donate? 11
IGNACIO BRETOS, MILLÁN DÍAZ-FONCEA, AND
CARMEN MARCUELLO
3 Efficiency in Nonprofit Organizations 23
VÍCTOR MARTÍN-PÉREZ AND NATALIA MARTÍN-CRUZ
4 Governance and Its Effect on Philanthropic Income 40
MARC JEGERS
5 Accountability, Transparency, and Voluntary Disclosure
in Nonprofit Organizations 49
MARÍA DEL MAR GÁLVEZ-RODRÍGUEZ, MANUEL LÓPEZ-GODOY,
AND MARÍA DEL CARMEN CABA-PÉREZ
6 Nonprofit Organization Reputation and Its Role
in Success: Antecedents and Effects 62
ESTHER DE QUEVEDO-PUENTE AND CLARA PÉREZ-CORNEJO
vi Contents
7 Crowding-Out or Crowding-In: The Dynamics of
Different Revenue Streams 83
ARJEN DE WIT, RENÉ BEKKERS, AND PAMALA WIEPKING
PART II
Revenues, Funding, and Financial Health 97
8 Revenue Diversification, Growth, and Stability 99
GRACE L. CHIKOTO-SCHULTZ AND NARTTANA
SAKOLVITTAYANON
9 Nonprofit Profits: Slack, Surplus, and Reserves 114
THAD D. CALABRESE AND TODD L. ELY
10 Treasury, Cash, and Liquidity Management in Nonprofit
Organizations 129
JOHN ZIETLOW
11 Capital Structure and Financial Health 145
MARCUS LAM, ELIZABETH SEARING, CHRISTOPHER PRENTICE,
AND NATHAN GRASSE
PART III
New Ways of Financing and an Approach to the
Business Practices 159
12 Business Practices in Nonprofit Funding 161
GABRIELA VACEKOVÁ, MÁRIA MURRAY SVIDROŇOVÁ,
MICHAL PLAČEK, AND JURAJ NEMEC
13 Crowdfunding as a New Model of Nonprofit Funding 173
DITA HOMMEROVÁ
Contributor Bios 188
Index 191
Acknowledgements

The editors would like to thank all the generous contributors to this
book. We are honored that so many of our colleagues agreed to col­
laborate altruistically with this project despite their many professional
commitments. We would also like to thank the support provided by the
R outledge editorial team. A special mention to Brianna Ascher and Mary
Del Plato for guiding us in this novel experience and to David Varley
for giving us the opportunity to think about this book. Additionally, we
would like to acknowledge the support provided by our institution, the
University of Burgos, the academic support always provided by Prof.
Pablo de Andrés, and the financial support obtained from the Spanish
Ministry of Economy and Competitiveness (Project ECO2017-85356-P).
Finally, we are personally grateful to our respective families for their
patience and comprehension throughout all time we have spent ensuring
this draft becomes reality.
The editors apologize for any errors or omissions that may appear
anywhere in the text.
Ignacio Bretos, Millán Díaz-Foncea, and Carmen Marcuello thank
the Government of Aragon and the ERDF 2014-2020 project “Building
Europe from Aragon” for the support received, which has allowed this
chapter to be prepared.
Víctor Martín-Pérez, Natalia Martín-Cruz, Esther de Quevedo-Puente,
and Clara Pérez-Cornejo want to acknowledge the financial support of
the project ECO2016-78128-P, funded by MINECO.
John Zietlow gratefully acknowledges library research assistance for
his chapter provided by Donna Young and Austin Pelate at Southwest
Baptist University.
Marcus Lam, Elizabeth Searing, Christopher Prentice, and Nathan
Grasse would like to thank Sarah Macartney for line-editing and Phillip
Tran for exceptional research assistance.
Gabriela Vaceková, Mária Murray Svidroňová, Michal Plaček, and
Juraj Nemec thank received funding from the Czech Grant Agency
(GA19-06020S).
viii Acknowledgements
Dita Hommerová thanks funding from scientific project no.
TL02000055, “Effective marketing as a tool of the competitiveness
and sustainable development of non-profit organizations provid­
ing social services” (Technology Agency of the Czech Republic, Eta
programme).
1 A Journey Through the

Finance of Nonprofit

Organizations

An Introduction
Inigo Garcia-Rodriguez and M. Elena
Romero-Merino
The finance of nonprofit organizations (hereinafter NPOs), defined as
the efficient generation and management of cash flow (Pajas & Vilain,
2004), has been a topic often relegated to second place by academics and
is usually confused with the act of fundraising. Most research regarding
NPOs financing is focused on private individual donations as they are
considered the most natural and characteristic source of funding for these
entities. The consideration of these private donations as essential for the
NPOs derives from theories regarding the origin of the so-called third or
social sector. For example, according to market failure/government fail­
ure theories, the nonprofit sector arises when citizens decide to finance
those demands from public goods that are met neither by the state nor by
the market (Salamon & Anheier, 1998). As it requires the participation
of a large number of contributors to be able to finance the achievement
of NPOs’ objectives effectively, this method of financing is considered a
paradigmatic example of collaborative financing effort. In a sense, NPOs
financing can be seen as evidence that the ‘new’ crowdfunding strate­
gies applied nowadays have been used in the nonprofit sector for several
decades without the intervention of specialized platforms through the
Internet. Therefore, whereas taxes were related to the public sector, and
the sale of goods and services to the lucrative private sector, NPOs were
always linked to private individual donations (Weisbrod, 1998).
Considering private contributions as the main source of NPO financ­
ing may not be problematic in a growing economy, when it is easy to
cover the basic financial needs of organizations. However, it becomes a
drawback in times of economic recession, when NPOs are threatened by
a reduction of income whereas their work, and therefore their expenses,
do not decrease. Thus, in recent years, other sources of financing (both
external and internal) have gradually been considered more relevant.
In addition, beyond raising money to support NPOs’ activities, there
has been increasing focus on the way in which these financial resources
are managed (e.g., reserves policy and treasury and cash management).
Nowadays, although private donations have increased in absolute terms,