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The object of study in this ongoing research project are Nonprofit Organizations (NPOs) classified as charities by the United States Internal Revenue Service and deemed tax-exempt under section 501(c)(3) of the Internal Revenue Code. NPOs are private corporations created to address market failures resulting from the underprovision or non-provision of services by government or the for-profit private sector. The study seeks to further the understanding of sustainable growth in these organizations and how it relates to key financial factors identified in corporate theory. In the nonprofit context, growth serves as an indicator of increased capacity for mission achievement. Public support in the form of grants and tax-deductible donations oblige NPOs to provide benefits to the public. Hence, a NPOs’ main goal (and obligation) is to further its mission and maximize social returns for its beneficiaries. In corporate finance, the sustainable growth rate of a company is a function of profitability, capital structure, efficiency and dividend policy. However, there is no possibility for the distribution of earnings, hence a different model must be applied to NPOs. Through multiple regression analysis and statistical modeling of a 10-year sample of U.S. nonprofits, the study seeks to examine the applicability of sustainable growth models and test proxies for a policy of non-distribution and reinvestment of all earnings. The study will include a subsample of NPOs based in Puerto Rico to draw observations and conclusion that are particular to the jurisdiction. In terms of applicability and importance to the study of economy, public policy and social sciences, sustainable growth in the nonprofit context presents challenges that should be accounted for by decision-makers and researchers. It is here where this study seeks to contribute to the research literature on NPOs and society at large.

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Ernesto Villarini (Puerto Rico) 11275
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