Working Paper: NBER ID: w26546
Authors: Tatiana Homonoff; Thomas L. Spreen; Travis St. Clair
Abstract: Using Form 990 data reported by public charities, we document significant bunching of nonprofits at near-zero net assets, the threshold for insolvency. Bunching occurs despite the fact that creditors cannot force insolvent nonprofits into involuntary bankruptcy. We show that the extent of bunching is greater among organizations that rely more heavily on contribution revenue, and that by inflating their net assets, bunching organizations are able to increase their contribution revenue relative to firms that report negative net assets. Charitable donors appear to use the net assets threshold as a heuristic for a charity's financial health; nonprofit managers, in turn, respond to the preferences of their donors.
Keywords: Nonprofits; Financial Reporting; Charitable Contributions
JEL Codes: H31; L31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| manipulation of financial reporting (M48) | donor preferences (D64) |
| manipulation of financial reporting (M48) | contribution revenue (D64) |
| reliance on contribution revenue (H27) | bunching estimates (C51) |
| bunching (C92) | perceived financial health (G50) |
| bunching (C92) | subsequent contribution revenue (H27) |
| negative net assets (G33) | manipulation of financial reporting (M48) |