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An Empirical Analysis of Charities in Financial Distress
John M. Trussel,
Penn State University at Harrisburg
ABSTRACT. I investigate the risk factors associated with charities in financial distress. First, I compare the risk factors of charities classified into three states--failed, financially distressed and not failed--and use multinomial logistic regression analysis to develop a model of financial distress. Second, I investigate how the risk factors impact the failure rate and the time until failure. Using Cox regression, I analyze the conditional probability of failure or the hazard function. I hypothesize that financial distress is positively correlated with revenue concentration and debt, while negatively correlated with operating margin, fundraising costs, executive compensation and size. The results show support for most of these hypothesized relationships. The Cox regression analysis assesses the impact of a change in a risk factor on the likelihood of surviving financial distress. Improvements in the operating margin and the revenue concentration index have the biggest influence on survival.
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