Are the Wealthy Also Healthy? An Empirical Evaluation of the Financial Health of Chinese Foundations

Abstract

Since the enactment of the 2004 Regulations of Management of Foundations, only limited research has focused on the financial health of Chinese foundations. However, given their importance in the nonprofit sector, study of these foundations is essential. This study comprised an empirical evaluation of the financial health of Chinese foundations based on a sample of 2,763 foundations and 10,102 observations. The Tuckman and Chang (1991) model, which measures adequacy of equity, revenue diversification, administrative cost ratio, and operating margin, revealed three major findings: (1) two-thirds of the Chinese foundations were financially unhealthy; (2) from 2008 to 2013, foundations’ overall financial health experienced moderate improvement, with public foundations outperforming private foundations; and (3) newer foundations may improve their health more quickly than older foundations. However, because their level of improvement ranged from low to moderate, these financial health scores should be interpreted conservatively. The decreased number of unhealthy foundations does not mean foundations have improved on all measures. Public foundations did not perform better on all measures than private foundations. In the period mentioned above, newer foundations improved on equity ratio and revenue diversification.