Nonprofit Cash Holdings : Determinants and Implications

This study examines the determinants and implications of nonprofit cash holdings. Based on agency theory and traditional literature of cash holdings I develop and test a number of predictions about nonprofit cash holdings. Several important findings can be highlighted. Nonprofit cash holdings do not seem to be detrimental to nonprofits; in fact its level can be explained with traditional precautionary and speculative motives. Additionally, governance and managerial proxies indicate that nonprofit cash holding may not be function of agency problems. Consistent with a harmless interpretation of cash holdings, nonprofits with higher excess cash tend to invest more in land, buildings and equipment than those that hold less cash. Finally, donors do not penalize organizations that hold high levels of cash