Abstract
Despite the enormous size of the nonprofit sector, there has been very little empirical research done on the capital structure of nonprofit organizations, and no one has examined the potential effects of borrowing on individual contributions. Using a representative sample of nonprofits, the empirical analysis first determines whether secured or unsecured borrowing by nonprofits influence future contributions. The results for the full sample support a “crowding-out” effect. When the analysis is repeated on a subsample of nonprofits that are older, larger, and more dependent upon donations, the results are more ambiguous: secured debt has little or no effect, while unsecured debt has a “crowd-in” effect. The empirical analysis is then expanded to test whether nonprofits with higher than average debt levels have different results than nonprofits with below average debt levels. The results suggest that donors do remove future donations when a nonprofit is more highly leveraged compared to similar organizations.