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Jiahuan Lu, Rutgers University-Newark

How Do Nonprofits Manage Profits? Preliminary Evidence from Nonprofit Hospitals


Despite the nondistribution constraint, nonprofit organizations can legally seek profits or surpluses. However, previous literature pays little attention to how nonprofits deal with their profits. This study tests and extends Chang and Tuckman’s theory of profit accumulation by nonprofits. Through a longitudinal analysis of U.S. nonprofit hospitals, we find that nonprofit hospitals seek profit accumulation over time. Further analysis suggests that nonprofit hospitals are more likely to expend profits to pursue organizational growth and financial stability. In addition, nonprofit hospitals do not seem to allocate profits to subsidize services to disadvantaged groups and reduce health disparities. In other words, nonprofit hospitals tend to use profits to serve organizational benefits rather than community benefits.