Handbook of Research on Nonprofit Economics and Management
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Handbook of Research on Nonprofit Economics and Management

Second Edition

Edited by Bruce A. Seaman and Dennis R. Young

Building on the success of the first edition, this thoroughly revised and expanded edition explores (1) areas of general agreement from previous research; (2) areas of conflicting results and unexplored questions; (3) the relative roles of theory, data availability and empirical analysis in explaining gaps in our knowledge; and (4) what must be done to improve our knowledge and extend the literature. Selected original chapters addressing especially challenging topics include the value of risk management to nonprofit decision-making; nonprofit wages theory and evidence; the valuation of volunteer labor; property tax exemption for nonprofits; when is competition good for the third sector; and product diversification and social enterprise; international perspectives; the application of experimental research and the macroeconomic effects of the nonprofit sector.
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Chapter 4: Capital structure

Marc Jegers


A nonprofit organization’s capital structure is defined as the amount of own funds (equity) compared with debt. The different components of equity (internal and external sources) and categories of debt (market debt and non-market debt) are discussed, as well as the diversification (and its measurement) of funding sources, and their respective implicit or explicit costs. Cost of equity and cost of debt are shown not to be the only determinants of capital structure (as they would imply an all equity capital structure): other relevant mechanisms such as equity constraints, potential agency costs between board and management, and borrowing constraints may also play a role. The available empirical results are discussed, as well as still existing gaps in our theoretical and empirical knowledge.

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