Simmer Down Now! A Study of Revenue Volatility and Dissolution in Nonprofit Organizations

Abstract

Many nonprofit organizations operate under immense financial pressure. Revenue volatility is a common target for managers to minimize under the assumption that maintaining consistent revenue enhances the viability of the organization while high revenue volatility may disrupt planning. However, the relationship between revenue volatility and the viability of nonprofit organizations is poorly understood. This article presents the first empirical test of the link between volatility and dissolution in U.S. public charities from 2010 to 2018 ( N = 2,126,894) using discrete time survival models. The results show that a 10% increase in revenue volatility predicts an increase in dissolution risk between 7% and 14%. In addition, the effect of revenue volatility varies by the age of the organization, suggesting volatility may be a greater threat to older organizations than to those newly formed. Implications for managers and future research are discussed.

Exploring Niche Alteration in Nonprofit Organizations

“…National Tax-Exempt Entity (NTEE) codes represent the most widely accepted classification for nonprofit organizations (D. A. Carroll & Stater, 2009; Fischer et al, 2011; Jeong & Cui, 2020; Kim, 2015; Lu et al, 2020; D. J. Mayer, 2022; Thornton, 2006).…”

“…Carroll & Stater, 2009;W. J. Mayer et al, 2012), lower insolvency risk (Frumkin & Keating, 2011), and lower risk of dissolution (Lu et al, 2020;D. J. Mayer, 2022).…”

“…Recall that structural inertia increases with legitimacy, organizational size, and the level of investment in equipment and infrastructure (Hannan & Freeman, 1977, 1984. We use the organization's ruling date, the year their exempt status was approved, as a measure of organizational age (Fischer et al, 2011;Lu et al, 2020;D. J. Mayer, 2022).…”

“…The population ecology of organizations (hereon, organizational ecology) focuses on the role of these forces in the transformation of organizations and organizational populations (G. Carroll, 1984;Hannan & Freeman, 1977). While transformations such as organizational founding and types of exits have received substantial attention (Baum & Oliver, 1996;Hager et al, 2004;Lu et al, 2020;D. J. Mayer, 2022;Park et al, 2021;Twombly, 2003), less attention has been paid to structural adaptations among nonprofit organizations.…”

“…Carroll, 1984; Hannan & Freeman, 1977). While transformations such as organizational founding and types of exits have received substantial attention (Baum & Oliver, 1996; Hager et al, 2004; Lu et al, 2020; D. J. Mayer, 2022; Park et al, 2021; Twombly, 2003), less attention has been paid to structural adaptations among nonprofit organizations.…”