Understanding Nonprofit Financial Health: Exploring the Effects of Economic Recession and Environmental Factors (2007-2012)

During an economic recession, the gaps between community service demands and available resources for nonprofits widen. Nonprofits with financial vulnerability cut back on their services or activities when facing a turbulent economic downturn. To make sense of such situations, drawn from organizational ecology theory, we examine the relationships between environmental factors and a nonprofit's financial health and the moderating role of the Great Recession of 2008 on their relationship. Employing IRS 990 and US census data (2007-2012) on counties, our longitudinal analysis finds that: 1) nonprofits' county-level environmental factors, i.e., service demand and available resources, are associated with their financial health; 2) the impact of economic recession on nonprofits' financial health is particularly severe in communities with greater racial diversity; and 3) nonprofits located in communities with more resources are more likely to be financially healthy and are less affected by the economic recession in the long term.