Revenue Diversification in Nonprofit Organizations: Does it Lead to Financial Stability?

This article investigates whether revenue diversification leads to greater stability in the revenue structures of nonprofit organizations. Our findings suggest that nonprofits can indeed reduce their revenue volatility through diversification, particularly by equalizing their reliance on earned inco...

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Bibliographic Details
Published in:Journal of public administration research and theory 2009-10, Vol.19 (4), p.947-966
Main Authors: Carroll, Deborah A., Stater, Keely Jones
Format: Article
Language:English
Subjects:
Dependency theory
Diversification
Earned income
Economic stability
Financial management
Financial portfolios
Financing methods
Funding
Fundraising
Income
Longevity
Non-profit organizations
Nonprofit Organizations
Organizational Effectiveness
Portfolio diversification
Public administration
Public revenue
Revenue
Service industries
Stability
Studies
Survival strategy
Sustainability
Tax revenue
Volatility
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Summary:This article investigates whether revenue diversification leads to greater stability in the revenue structures of nonprofit organizations. Our findings suggest that nonprofits can indeed reduce their revenue volatility through diversification, particularly by equalizing their reliance on earned income, investments, and contributions. This positive effect of diversification on revenue stability implies that a diversified portfolio encourages more stable revenues and consequently could promote greater organizational longevity. Despite any additional complexity or crowding out, nonprofit managers may increase the financial stability of their organizations by adding additional revenue streams. However, our analysis also reveals several other important factors that contribute to nonprofit revenue stability. In particular, increasing a nonprofit organization's total expenses and fund balance reduces volatility, suggesting larger nonprofits and organizations with greater growth potential experience greater revenue stability. Finally, the results suggest nonprofits relying primarily on contributions will experience more volatility, whereas nonprofits located within urban areas will have more stable revenue structures over time.
ISSN:1053-1858
1477-9803
DOI:10.1093/jopart/mun025