The Uniqueness of Nonprofit Finance and the Decision to Borrow

Previous studies of nonprofit capital structure (borrowing relative to assets) support contradictory decision models of borrowing, but with no control for an endowment effect, which this article shows to be an important factor in the decision to borrow. Well‐endowed nonprofits borrow more relative to their physical assets. When endowment and investment income are backed out of the data, nonprofits are seen to optimize the balance between debt and physical assets.