Intangible assets in nonprofit organizations: An empirical analysis of determinants and consequences

• In Event: Non-profit finances 2

Abstract

In this paper, we capitalize on a large sample of Belgian nonprofit organizations (NPOs) for which detailed financial statement filings are available over the period 2014-2022 to examine the determinants and consequences of NPOs investing in intangible assets. While for-profit literature has confirmed the strategic importance of intangible assets, nonprofit research has so far been unable to study similar benefits, given the lack of data related to intangible assets. We aim to fill this gap in understanding the types of NPOs that invest in intangibles as well as the subsequent effects of these investments in terms of future revenues generated. Using the balance sheet approach to identify investments in intangibles, we find that about 44 percent of sample NPOs report intangibles on their balance sheet (i.e., net book value having a non-zero value) and that about 30 percent invest in new intangibles (i.e., cost of acquisition for newly acquired intangibles having a non-zero value in the notes to the financial statements). To identify potential determinants of investing in intangibles, we rely on resource dependence theory to distinguishing between commercial and donative NPOs. Then, utilizing logit (dummy variable) and tobit (continuous variable) regression models of investment in intangibles, we find that commercial NPOs (i.e., NPOs relying more heavily on commercial revenues) are significantly more likely to invest in intangible, while donative NPOs (i.e., NPOs relying more heavily on donations and grants) are significantly less likely to invest in intangibles. Other organization-level characteristics found to be positively associated with investment in intangibles include size of the NPO and the extent of revenue diversification. Modelling two-year ahead operating revenues, we find that investments in intangibles have a significantly positive effect on future operating revenues, after controlling for current operating revenues as well as additional known covariates. Moreover, decomposing operating revenues into its major components, we further note that investments in intangibles have a significantly positive effect on future commercial revenues, but no significant effect on future donations and grants, consistent with our predictions based on the resource based theory. The findings of this paper are relevant for all those interested in NPOs as well as the use and investment in intangible assets.

References

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Authors

• Zhanel DeVides, Penn State Abington

• Erica Harris, Florida International University, School of Accounting

• Tom Van Caneghem, Universiteit Antwerpen