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.