Events

Professor Stefan Zeume
Assistant Professor of Finance
Gies College of Business
University of Illinois Urbana-Champaign

Nonprofits in the United States finance over $3 trillion in spending with limited access to equity or debt markets, and hold large liquid reserves. Using the universe of nonprofits and two shocks, we show these reserves do not protect them: a cash-rich paradox in which high-liquidity organizations cut mission spending by a third and see exit rates triple after a shock. The mechanism is donor triage: donors read liquidity as a signal of need; higher liquidity predicts less fundraising effort, fewer unrestricted donations, and larger restricted and endowment gifts. The results identify a cost of liquidity rooted in neither shareholders, debt markets, nor managerial agency.