Resource Dependence In Non-profit Organizations: Is It Harder To Fundraise If You Diversify Your Revenue Structure?

Abstract

This article explores how fundraising efficiency is affected by changes in diversification of revenues in non-profit organizations. It uses random effect regression and Arellano-Bond models to study this phenomenon in a sample of 10358 US non-profits during the 1997-2007 period. We find a negative impact on fundraising efficiency when NPOs alter their locus of dependence and change their pattern of diversification. This effect is impacted by organizational size and industry. Previous studies have suggested that income heterogeneity is associated with organizational stability and financial strength. Using a change (versus level) model of funding diversity, our work shows that increased diversification leads to a higher operational inefficiency that could be penalized by potential donors.Résumé Cet article explore la façon dont le rendement des collectes de fonds est influencé par les changements survenus dans la diversification des revenus des organismes sans but lucratif. Il emploie des modèles de régression à effet aléatoire et Arellano-Bond pour étudier ce phénomène à l'aide des données de 10,358 organismes sans but lucratif américains datant de 1997 à 2007. Nous remarquons que le rendement des collectes subit des effets négatifs lorsque les organismes altèrent leur rapport de dépendance et modifient leur modèle de diversification. Cet effet est influencé par la taille et le secteur des dits organismes. Des études précédentes ont suggéré que l'hétérogénéité des revenus est associée à la stabilité et à la force financière de l'organisme. À l'aide d'un modèle (niveaux de comparaison) d'étude des changements de la diversité des fonds, nos travaux démontrent que la diversification accrue provoque un rendement opérationnel supérieur, qui pourrait être pénalisé par de potentiels donateurs. & Ó scar Rodríguez Ruiz orr@ccee.ucm.es Zusammenfassung Dieser Beitrag untersucht, wie sich die Ä nderungen in der Einnahmendiversifizierung gemeinnütziger Organisationen auf die Effizienz der Mittelbeschaffung auswirken. Man stützt sich dabei auf die Random-Effects-Regressions-und Arellano-Bond-Modelle, um dieses Phänomen anhand einer Stichprobe von 10.358 US-amerikanischen gemeinnützigen Organisationen im Zeitraum von 1997 bis 2007 zu erforschen. Das Ergebnis zeigt eine negative Auswirkung auf die Effizienz der Mittelbeschaffung, wenn die gemeinnützigen Organisationen ihren Locus der Abhängigkeit und ihre Diversifizierungsstruktur ändern. Die Größe und Branche der Organisation beeinflussen diesen Effekt. Vorherige Studien deuteten darauf hin, dass die Einnahmenheterogenität mit der Stabilität und Finanzkraft einer Organisation in Verbindung steht. Anhand eines Ä nderungsmodells (im Gegensatz zu einem Ebenenmodell) der Finanzierungsdiversität wird gezeigt, dass eine größere Diversifizierung zu einer erhöhten betrieblichen Ineffizienz führt, die von potenziellen Spendern geahndet werden könnte.Resumen El presente artículo explora cómo la eficiencia en la recaudación de fondos se ve afectada por cambios en la diversificación de los ...

The Hidden Cost of Trustworthiness

“…Normatively, nonprofits are generally expected to diversify their revenues to mitigate financial volatility (Carroll & Stater, 2009;Hung & Hager, 2018) and to generally avoid excessive risk. However, research has suggested that revenue concentration may be a strategic instrument for achieving faster growth (Chikoto & Neely, 2014;de los Mozos et al, 2016;Frumkin & Keating, 2011;Grønbjerg, 1992), greater administrative efficiency (Foster & Fine, 2007), and consequently, increased organizational impact over time. Research has also noted that types of diversification matter and that diversification is not necessarily a risk-reduction strategy per se (Mayer et al, 2014).…”

Penalty or Payoff? Diversity of Tactics and Resource Mobilization Among Environmental Organizations

“…Each of these approaches has costs and benefits. On the one hand, diversifying income sources involves an increased risk of losing other revenue sources (Grasse et al, 2016), increased administrative costs (Sacristán López de los Mozos et al, 2016), and mission drift since heterogeneous income sources may shift focus to funders (Kearns et al, 2014). On the other hand, having a diversity of income sources could increase organizational flexibility when weathering shocks such as a global financial crisis (Carroll & Stater, 2009), autonomy in mission selection (Mitchell, 2014), and income and organizational growth (Hung & Hager, 2019).…”

“…Historically, much of the research on the topic has found a positive relationship between diversifying income sources and financial health (Alexander, 1998; Bielefeld, 1994; Carroll & Stater, 2009; Greenlee & Trussel, 2000; Grønbjerg, 1993; Hager, 2001; Tuckman & Chang, 1991). However, more recent examinations - including the one article that specifically addresses social movements organizations (Walker & McCarthy, 2010) - have not found support for the relationship between income diversification and the financial health of non-profit organizations (Chikoto & Neely, 2014; Lin & Wang, 2016; Prentice, 2016; Sacristán López de los Mozos et al, 2016). Hung and Hager (2019) conducted a meta-analysis of 40 original research articles on the relationship between income diversification and non-profit organizational health.…”

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“…While benefits theory is commonly applied to explain the finances of nonprofit organizations (NPOs) (Aschari-Lincoln and Jäger, 2015; Sacrist an L opez de los Mozos et al, 2016), it is only beginning to be explored as a theory to understand the finances of SEs. For example, Bassi et al (2016) applied benefits theory to the financing of social cooperatives in Italy, and Guo and Peng (2020) used it indirectly to investigate the differences in start-up funding of for-profit and nonprofit SEs in the US state of Illinois.…”