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Financial factors that influence the size of nonprofit operating reserves

Cleopatra Grizzle (School of Public Affairs and Administration, Rutgers, The State University of New Jersey)
Margaret F. Sloan (Strategic Leadership in the nonprofit and community leadership concentration in the School of Strategic Leadership Studies at James Madison University)
Mirae Kim (Harry S Truman School of Public Affairs, University of Missouri-Columbia)

Journal of Public Budgeting, Accounting & Financial Management

ISSN: 1096-3367

Article publication date: 1 March 2015

Abstract

ABSTRACT

Although operating reserves can aid nonprofit organizations in alleviating periods of fiscal stress, they are not widely used. This study examines organizational factors that impact the level of operating reserves in nonprofit organizations. It also explores the relationship of operating reserves with organizational demographics and financial health variables using a six-year (1998-2003) unbalanced panel regression model containing 460,437 observations. Findings demonstrate a positive relationship between operating reserves and administration ratio, profit margin, operating margin, and organization age. Conversely, the size of operating reserves is negatively related to leverage ratio, donations, and organization size. Revenue diversification, however, shows a mixed relationship with operating reserves among different types of nonprofit indicating complexity in risk-reducing strategy. This study contributes to understanding factors relevant to the presence, or absence, of nonprofit operating reserves.

Citation

Grizzle, C., Sloan, M.F. and Kim, M. (2015), "Financial factors that influence the size of nonprofit operating reserves", Journal of Public Budgeting, Accounting & Financial Management, Vol. 27 No. 1, pp. 67-97. https://doi.org/10.1108/JPBAFM-27-01-2015-B003

Publisher

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Emerald Publishing Limited

Copyright © 2015 by PrAcademics Press