We're in the money: unrestricted cash windfalls and charitable nonprofits

Purpose The purpose of this study is to investigate the spending allocations associated with significant, one-time unrestricted cash windfalls from contributions. The absence of donor restriction enables nonprofits to exercise full discretion over how windfalls are used. Design/methodology/approach Using IRS Form 990, I construct a novel measure of unrestricted cash windfalls from private contributions and leverage a staggered difference-in-differences research design to analyze how windfalls are used. Findings The findings suggest that nonprofits retain significant portions of windfalls. Despite these savings, the findings indicate that nonprofits use windfalls to make two key structural changes by making investments in fixed assets and maintaining less debt. Although the findings also indicate that windfalls are allocated to program spending, these allocations are made concurrently with overhead spending leaving the program ratio relatively unchanged. Although the post-windfall period suggests an increase in CEO responsibility, the results indicate that there is no relation between windfalls and CEO compensation. Alternative windfall specifications generally support these inferences and provide additional insights into spending patterns. Originality/value To my knowledge, this study is the first to examine the outcomes associated with unrestricted cash windfalls from private contributions.