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Nonprofit Financial Vulnerability: Testing Competing Models, Recommended Improvements, and Implications

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Abstract

We examine the predictive validity of existing models used by researchers and by professional rating agencies of nonprofit organizations to assess financial vulnerability, on a sample of performing arts organizations. The models tested include Ohlson’s (J Account Res 18(1):31–109, 1980) “business” model, Tuckman and Chang’s “nonprofit” model (Nonprofit Volunt Sect Q 20:445–460, 1991), and a “practitioner” model based on the guidelines of two nonprofit ranking and rating agencies (Copps and Vernon, The little blue book, NPC’s guide to analyzing charities, for charities and funders. New Philanthropy Capital, London, 2010; Midot, Midot guide for effectiveness. Midot—Analyzing and Rating NPOs. Tel Aviv, 2013). Since there is considerable criticism over the effectiveness of existing models in predicting financial distress, we propose that a new model is needed which can improve our ability to predict financial vulnerability. The findings reveal that the Tuckman and Chang model provides the best prediction of financial vulnerability; and a reduced version offers an even better prediction. Implications for financial management and particularly for revenue diversification, increased overhead costs (particularly management costs), and surplus accumulation are discussed.

Résumé

Nous examinons la validité prédictive des modèles existants utilisés par les chercheurs et par les agences de notation professionnelles des organisations à but non lucratif pour évaluer la vulnérabilité financière sur un échantillon d’organisations des arts du spectacle. Les modèles testés sont le modèle des entreprises d’Ohlson (1980), le modèle des organisations à but non lucratif de Tuckman et de Chang (1991), et le modèle des professionnels basés sur les lignes directrices de deux agences de notation d’organisations à but non lucratif (Copps and Vernon 2010; Midot 2013). Étant donné que l’efficacité des modèles existants pour prédire les difficultés financières suscite de vives critiques, nous proposons la nécessité d’un nouveau modèle permettant d’améliorer notre capacité à prévoir la vulnérabilité financière. Les résultats révèlent que le modèle de Tuckman et de Chang fournit la meilleure prévision de la vulnérabilité financière et qu’une version réduite offre une meilleure prévision. Les conséquences pour la gestion financière et en particulier pour la diversification des revenus, l’augmentation des frais généraux (en particulier les coûts de gestion) et l’accumulation des excédents sont étudiées.

Zusammenfassung

Wir untersuchen an einer Reihe von Organisationen im Bereich der darstellenden Kunst die prädiktive Aussagekraft bestehender Modelle, die von Forschern und professionellen Ratingagenturen gemeinnütziger Organisationen angewandt werden, um die finanzielle Anfälligkeit zu bewerten. Die getesteten Modelle schließen das „Geschäftsmodell“von Ohlson (1980), das „Nonprofit-Modell“von Tuckman und Chang (1991) und ein „Praktikermodell“ein, das auf den Richtlinien zweier gemeinnütziger Ranking- und Ratingagenturen (Copps & Vernon 2010; Midot 2013) beruht. Da viel Kritik an der Effektivität der bestehenden Modelle dahingehend geübt wird, inwieweit sie eine Prognose zu finanziellen Schwierigkeiten erstellen können, fordern wir ein neues Modell, das uns erlaubt, die finanzielle Anfälligkeit vorauszusagen. Die Ergebnisse zeigen, dass das Modell von Tuckman und Chang die beste Prognoseerstellung für eine finanzielle Anfälligkeit erlaubt, wobei eine gekürzte Version eine noch bessere Prognose ermöglicht. Es werden die Implikationen für das Finanzmanagement und inbesondere für die Einnahmendiversifizierung, erhöhten Gemeinkosten (vor allem Managementkosten) und Überschussansammlung diskutiert.

Resumen

Examinamos la validez predictiva de los modelos existentes utilizados por investigadores y por agencias profesionales de calificación de organizaciones sin ánimo de lucro para evaluar la vulnerabilidad financiera, en una muestra de organizaciones de artes escénicas. Los modelos probados incluyen el modelo de “negocio” de Ohlson (1980), el modelo de “organizaciones sin ánimo de lucro” de Tuckman y Chang y un modelo de “profesional” basado en las directrices de dos agencias de calificación y clasificación de organizaciones sin ánimo de lucro (Copps & Vernon 2010; Midot 2013). Dado que existe una considerable crítica sobre la efectividad de los modelos existentes para predecir las dificultades financieras, proponemos que se necesita un nuevo modelo que pueda mejorar nuestra capacidad para predecir la vulnerabilidad financiera. Los hallazgos revelan que el modelo de Tuckman y Chang proporciona la mejor predicción de vulnerabilidad financiera; y una versión reducida ofrece una predicción incluso mejor. Se analizan también las implicaciones para la gestión financiera y en particular para la diversificación de los ingresos, el aumento de los costes generales (en particular, los costes de gestión) y la acumulación de excedentes.

Chinese

我们考察了目前研究人员和非盈利性机构的专业评级机构在评估金融脆弱性时所使用的模型在预测金融脆弱性方面的有效性,我们考察的模型包括 Ohlson’s (1980)的“商业模型”、Tuckman 和 Chang的“非盈利”模型 (1991)以及建立在两家非盈利性评级机构 (Copps & Vernon 2010; Midot 2013)的指南的基础上的“从业人员模型”。由于现有的金融脆弱性预测模型的预测有效性有效性饱受批评, 我们提出需要新的、更有效的金融脆弱性预测模型。结果显示, Tuckman 和 Chang的模型的金融脆弱性的预测能力最强大, 其简化版的预测能力甚至更高。同时,也讨论了这一模型对金融管理的意义,尤其是对收入多元化、运营开支增加(尤其是管理开支)和盈余累积的意义 。

Arabic

نحن فحصنا صحة سريان مفعول النماذج الحالية المستخدمة من الباحثين وعن طريق وكالات تصنيف مهنية للمنظمات الغير ربحية لتقييم الضعف المالي، على عينة من أداء منظمات الفنون. نماذج إختبار تشمل (Ohlson) في (1980) “نموذج العمل” ،(Tuckman و Chang) نموذج “للمنظمة الغير ربحية” (1991)، ونموذج “ممارس” إستنادا˝ إلى توجيه وكالتين للترتيب والتصنيف الغير ربحي (Midot 2013 ؛Copps & Vernon 2010). إنه ليس هناك إنتقاد كبير على مدى فعالية النماذج القائمة في التنبؤ بضائقة مالية، فإننا نقترح أن هناك حاجة إلى نموذج جديد الذي يمكن أن يحسن قدرتنا على التنبؤ بالضعف المالي. تكشف النتائج أن نموذج (Tuckman و Chang) يوفر أفضل تنبؤ بالضعف المالي؛ والنسخة المصغرة توفر تنبؤ أفضل. تمت مناقشة الآثار المترتبة على الإدارة المالية وخاصة تنويع مصادر الدخل، وزيادة النفقات العامة (خاصة تكاليف الإدارة) ، وتراكم الفائض.

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Correspondence to Hagai Katz.

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Tevel, E., Katz, H. & Brock, D.M. Nonprofit Financial Vulnerability: Testing Competing Models, Recommended Improvements, and Implications. Voluntas 26, 2500–2516 (2015). https://doi.org/10.1007/s11266-014-9523-5

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