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Entry and Exit in the Nonprofit Sector

Listed author(s):
  • Harrison Teresa D.

    ()

    (Drexel University)

  • Laincz Christopher A

    ()

    (Drexel University)

We study the entry and exit dynamics of nonprofit public charities using 1989-2003 tax return data. The observed patterns can be understood using a dynamic industry model based on Jovanovic (1982) that incorporates profit-deviation and a non-redistribution constraint. Both features generate a high exit threshold which implies high net entry rates and low exit rates. The data reveal that nonprofit gross entry rates are lower than those of for-profits in services, while extremely low exit rates (across both sectors and time) result in net entry rates nearly 3 times larger than that of for-profit firms. We find that the behavior of new public charities is remarkably similar to that found in studies of private firms (e.g. new firms begin smaller than the industry mean, but grow faster). However, exit patterns diverge sharply. Besides relatively low exit rates, the survival rate of new nonprofit firms greatly exceeds those found in studies on services and manufacturing. In addition we find that the hazard rate of exit declines with age and size, and with size conditional on age.

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File URL: https://www.degruyter.com/view/j/bejeap.2008.8.1/bejeap.2008.8.1.1937/bejeap.2008.8.1.1937.xml?format=INT
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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 (July)
Pages: 1-42

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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:22
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  1. Troske, Kenneth R, 1996. "The Dynamic Adjustment Process of Firm Entry and Exit in Manufacturing and Finance, Insurance, and Real Estate," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 705-735, October.
  2. Harrison, Teresa & Laincz, Chris, 2013. "Nonprofits, Crowd-Out, and Credit Constraints," School of Economics Working Paper Series 2013-5, LeBow College of Business, Drexel University.
  3. Hansmann, Henry, 1986. "A Theory of Status Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(1), pages 119-130, Spring.
  4. Teresa D. Harrison, 2008. "Taxes and Agglomeration Economies: How Are They Related to Nonprofit Firm Location?," Southern Economic Journal, Southern Economic Association, vol. 75(2), pages 538-557, October.
  5. Ronald A. Wirtz, 2006. "The economy’s middle child," Fedgazette, Federal Reserve Bank of Minneapolis, issue Jul, pages 1-4.
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