Macro and microeconomic causes of the vulnerability of nonprofit organizations : focus on an approach to assess financial vulnerability of nonprofit organizations based on financial capacity and financial sustainability

Abstract

In this work, we review the macro and microeconomic causes of NPOs’ vulnerability before presenting an approach to assess the financial vulnerability of a nonprofit and especially to assess its hazard rate of dissolution. To achieve this, we use a survival analysis which calculates, in our case, the hazard rate of dissolution, the vulnerability, after a certain period of time of existence of an NPO. This survival analysis is based on an explanative variable constituted by a financial capacity and a sustainability measure and an interaction variable between financial capacity and financial sustainability. This interaction variable shows that the effect of financial capacity or financial sustainability on hazard rate of dissolution depends on, respectively, the level of financial sustainability or financial capacity. So, we show how these two aspects of the financial state of an NPO are linked and why they should be considered together when assessing the vulnerability of an NPO. This indicates that we should study the effect of a financial change, such as revenue diversification for instance, on both financial capacity and financial sustainability in order to understand its overall effect on financial vulnerability.