Births

The first step in understanding organization births is to clarify what is meant by the birth of an organization. Different researchers can have different definitions. One may consider "birth" to occur when the founder or founders decide to create an organization; another definition could be when the organization is incorporated (an act that, in theory, can occur long before it becomes tax-exempt); still a third researcher could define birth as when an organization actively delivers services or fulfills its mission. There is no "right" answer to this issue.

The IRS Business Master Files include a field (ruledate) indicating when registered nonprofit organizations obtained formal recognition of their tax exempt status by the IRS. (In other words, when the IRS approved their applications for exempt status.) NCCS typically uses this as a proxy for when an organization was created. Two caveats, however, should be kept in mind:

1. IRS files were computerized in the 1960s. Prior to that time, collection of ruling date information appears limited. Only 130 501(c)(3) organizations out of more than 945,000 registered in 2005 had ruling dates prior to 1920. A review of major private universities shows that many have 20th Century ruling dates that clearly do NOT reflect their date of establishment. An additional 9,746 (1%) had no ruling dates entered. (These appear as '0000' on the file. An analysis of the 2005 Core Public Charity File shows that the same percentage (1%) of Form 990 filers have no ruling dates, too.)

2. For newer organizations, an additional caveat, albeit far less significant, should be noted. Depending on one's definition of birth, founding or establishment, one might want to consider an organization?s founding to reflect when its founders decided to create an organization. It is conceivable that years could pass between that time and when the organization had more than $5,000 in gross receipts and was thus required to obtain recognition of its tax exempt status.

Caveats aside, the ruling date is probably an adequate proxy for organization founding period, at least for organizations created since the 1960s.

Deaths

IRS lists of registered nonprofit organizations and Form 990 filers are a useful starting point for exploring the issue but have significant limitations. One limitation is that one cannot know what happened to an organization that stops filing with the IRS. It might have died, but it might have successfully merged with another organization, been acquired by one, or transformed into a government agency, church, private foundation, business, or other entity that is not required to file the 990. Alternatively, the organization might have gotten small enough (less than $25,000 in gross receipts) that it was not required to file.

A second limitation is that the 990 is mostly a financial reporting document, so there isn't going to be any indication of many of the things (like access to legal services and education) that we might hypothesize are related to an organization's survival chances.

Not knowing what happened to an organization that disappears heightens the problem of equating disappearance with 'failure.' Some nonprofits close when they fulfill a mission that they set out to accomplish, so it succeeded rather than failed.

A number of researchers have done work on organizational survival, and some of those have focused on nonprofit organizations. One of the clear findings that have accumulated from these studies is that younger organizations are at a much higher risk of failure than older, more established organizations.

A paper by Mark Hager of the Urban Institute (2004) elaborates on the argument that the 'liability of newness' is related to a whole host of organizational connections and competencies. It also includes a list of the relevant work in this area. Another paper on the topic by Susan Chambre (Baruch College) is primarily a descriptive study of the liability of newness.

Survival Rates, 2000-2005

The attached spreadsheet shows that 84% of organizations included in the "circa 2000" NCCS Core file "survived" for five years. Sixteen percent appear to have become defunct.

The cohort of organizations in this table consists of all organizations filing IRS Forms 990 or 990-EZ and reporting more than $25,000 in gross receipts in one fiscal year between 1998 and 2001.

"Survival" is defined narrowly in this table as organizations filing a Form 990 or 990-EZ and reporting more than $25,000 in gross receipts in any year between 2003 and 2006.

References:

Mark A. Hager, Joseph Galaskiewicz & Jeff A. Larson. 2004. "Structural Embeddedness and the Liability of Newness among Nonprofit Organizations." Public Management Review 6(2): 157-186.

Susan M. Chambre & Naomi Fatt. 2002. "Beyond the Liability of Newness: Nonprofit Organizations in an Emerging Policy Domain". Nonprofit and Voluntary Sector Quarterly 31(4): 502-524.

Eric Twombly. 2003. "What Factors Affect the Entry and Exit of Nonprofit Human Service Organizations in Metropolitan Areas?" Nonprofit and Voluntary Sector Quarterly 32(2): 211-235.

Hager Listserv Discussions:

ARNOVA-L, July 1998: http://listserv.wvu.edu/cgi-bin/wa?A2=ind9807&L=arnova-l&P=R2339&I=-3.

ARNOVA-L, November 2000: http://listserv.wvu.edu/cgi-bin/wa?A2=ind0011&L=arnova-l&P=R4586&I=-3.

ARNOVA-L, April 2002: http://listserv.wvu.edu/cgi-bin/wa?A2=ind0204&L=arnova-l&P=R797&I=-3.

ARNOVA-L, April 2004: http://listserv.wvu.edu/cgi-bin/wa?A2=ind0404&L=arnova-l&P=R6561&I=-3.

KEYWORDS: SURVIVAL,DEATH,BIRTH,ENDDATE,DEFUNCT, END DATE,ENDING DATE, NEW ORGANIZATIONS, ORGANIZATION FAILURE