Signaling Creditworthiness: Exploring Debt Access among Chinese Nonprofits

Abstract Debt financing plays a critical role in the financial sustainability of nonprofit organizations, yet scholarly understanding of the factors influencing nonprofits’ access to debt remains limited. This study explores the antecedents of creditworthiness among Chinese nonprofits, focusing on the role of political connections, revenue diversification, and organizational size. Drawing on signaling theory, we argue that these factors serve as credible signals to lenders, reducing information asymmetry and thereby enhancing nonprofits’ access to debt. Using survey data from Chinese nonprofits, we find that political connections and organizational size significantly improve creditworthiness, while revenue diversification does not. The findings also reveal a heavy reliance on debt among Chinese nonprofits, highlighting the importance of debt financing as a useful financial tool in resource-constrained environments. This study adds to the literature on nonprofit debt by presenting evidence from the unique and underexplored authoritarian context of China and by offering practical insights for nonprofits seeking to enhance their creditworthiness.