Capital Structure and Debt Maturity in Nonprofit Organizations

This article examines the capital structure and debt maturity in nonprofit organizations (NPOs). In particular, we analyze whether these financing decisions are made as expected according to the two main theories used to explain the capital structure, that is, the trade-off and pecking order theories. To do so, we study the associations between NPOs' indebtedness and their size, age, tangibility, liquidity, profitability, risk, and growth. We use fixed effects, probit, and Heckman selection models with unbalanced panel data containing 8,721 charities in the United Kingdom for the period 2011-2018 (60,222 year-obs). Our results show that the financing patterns of NPOs are consistent with the arguments of the pecking order theory. We also find that less than half of our sample uses long-term debt. Moreover, debt maturity is longer in larger NPOs, those with more tangible assets, or those with higher liquidity.