Chapter 4 Capital structure
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A nonprofit organization’s capital structure is defined as the amount of own funds (equity) compared with debt. The different components of equity (internal and external sources) and categories of debt (market debt and non-market debt) are discussed, as well as the diversification (and its measurement) of funding sources, and their respective implicit or explicit costs. Cost of equity and cost of debt are shown not to be the only determinants of capital structure (as they would imply an all equity capital structure): other relevant mechanisms such as equity constraints, potential agency costs between board and management, and borrowing constraints may also play a role. The available empirical results are discussed, as well as still existing gaps in our theoretical and empirical knowledge.

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