Advertisement

Does a More Diversified Revenue Structure Lead to Greater Financial Capacity and Less Vulnerability in Nonprofit Organizations? A Bibliometric and Meta-Analysis

  • Jiahuan Lu
  • Weiwei Lin
  • Qiushi WangEmail author
Original Paper
First Online:
  • 47 Downloads

Abstract

This article explores how and to what extent revenue diversification and concentration strategies affect financial performance, particularly financial capacity and vulnerability, in nonprofit organizations. Using a sample collected from a systematic literature search of all major databases, we first conducted a bibliometric analysis of 86 existing studies to visualize the clusters of major topics in this area and to explore the connections between existing studies. We then employed a meta-analysis to quantitatively synthesize 258 effect sizes from 23 existing empirical studies. We found that diversification had little effect on financial vulnerability, but it had a slightly negative effect on financial capacity. The article finally uses a meta-regression to discuss some of the theoretical and practical reasons why there is inconsistency in the results across existing studies and calls for more discussion of the assumptions and effectiveness of revenue diversification among nonprofit scholars and practitioners.

Keywords

Revenue diversification Financial capacity Financial vulnerability Bibliometric analysis Meta-analysis 
This is a preview of subscription content, log in to check access.

Notes

Acknowledgements

An earlier version of this manuscript was presented at the 2017 ARNOVA conference in Grand Rapids, MI. The authors appreciated the comments from the panel audience, including William Suhs Cleveland, Mark Hager, Georg von Schnurbein, and others.

Compliance with Ethical Standards

Conflict of interest

The authors declare that they have no conflict of interest.

References

  1. Aldrich, H., & Auster, E. R. (1986). Even dwarfs started small: Liabilities of age and size and their strategic implications. Research in Organizational Behavior, 8, 165–198.Google Scholar
  2. Bielefeld, W. (1992). Non-profit funding environment relations: Theory and application. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 3(1), 48–70.Google Scholar
  3. Borenstein, M. (2009). Effect sizes for continuous data. In H. Cooper, L. V. Hedges, & J. C. Valentine (Eds.), The handbook of research synthesis and meta-analysis (2nd ed., pp. 221–236). New York: Russell Sage Foundation.Google Scholar
  4. Borenstein, M., Hedges, L. V., Higgins, J., & Rothstein, H. R. (2010). A basic introduction to fixed-effect and random-effects models for meta-analysis. Research Synthesis Methods, 1(2), 97–111.Google Scholar
  5. Bowman, W. (2011). Financial capacity and sustainability of ordinary nonprofits. Nonprofit Management and Leadership, 22(1), 37–51.Google Scholar
  6. Brooks, A. C. (2000). Is there a dark side to government support for nonprofits? Public Administration Review, 60(3), 211–218.Google Scholar
  7. Bryson, J. M., Crosby, B. C., & Stone, M. M. (2006). The design and implementation of cross-sector collaborations: Propositions from the literature. Public Administration Review, 66(S1), 44–55.Google Scholar
  8. Calabrese, T. (2012a). Running on empty: The operating reserves of U.S. nonprofit organizations. Nonprofit Management and Leadership, 23(3), 281–302.Google Scholar
  9. Calabrese, T. D. (2012b). The accumulation of nonprofit profits: A dynamic analysis. Nonprofit and Voluntary Sector Quarterly, 41(2), 300–324.Google Scholar
  10. Carroll, D. A., & Stater, K. J. (2009). Revenue diversification in nonprofit organizations: Does it lead to financial stability? Journal of Public Administration Research and Theory, 19(4), 947–966.Google Scholar
  11. Chang, C. F., & Tuckman, H. P. (1994). Revenue diversification among non-profits. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 5(3), 273–290.Google Scholar
  12. Chang, C. F., & Tuckman, H. P. (1996). The goods produced by nonprofit organizations. Public Finance Quarterly, 24(1), 25–43.Google Scholar
  13. Chen, C. (2004). Searching for intellectual turning points: Progressive knowledge domain visualization. Proceedings of the National Academy of Sciences, 101(s1), 5303–5310.Google Scholar
  14. Chikoto, G. L., Ling, Q., & Neely, D. G. (2016). The adoption and use of the Hirschman-Herfindahl Index in nonprofit research: Does revenue diversification measurement matter? Voluntas: International Journal of Voluntary and Nonprofit Organizations, 27(3), 1425–1447.Google Scholar
  15. Chikoto, G. L., & Neely, D. G. (2014). Building nonprofit financial capacity: The impact of revenue concentration and overhead costs. Nonprofit and Voluntary Sector Quarterly, 43(3), 570–588.Google Scholar
  16. Chikoto-Schultz, G. L., & Neely, D. G. (2016). Exploring the nexus of nonprofit financial stability and financial growth. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 27(6), 2561–2575.Google Scholar
  17. Cohen, J. (1988). Statistical power analysis for the behavior science. Hillside: Lawrance Eribaum Association.Google Scholar
  18. Cordery, C. J., Sim, D., & Baskerville, R. F. (2013). Three models, one goal: Assessing financial vulnerability in New Zealand amateur sports clubs. Sport Management Review, 16(2), 186–199.Google Scholar
  19. de Andrés-Alonso, P., Garcia-Rodriguez, I., & Romero-Merino, M. E. (2015). The dangers of assessing the financial vulnerability of nonprofits using traditional measures. Nonprofit Management and Leadership, 25(4), 371–382.Google Scholar
  20. de Jong, F. (2014). Revenue diversification in Dutch charity organizations: Does it lead to growth? (Doctoral dissertation). Tilburg University.Google Scholar
  21. de los Mozos, I. S. L., Duarte, A. R., & Ruiz, O. R. (2016). Resource dependence in non-profit organizations: Is it harder to fundraise if you diversify your revenue structure? Voluntas: International Journal of Voluntary and Nonprofit Organizations, 27(6), 2641–2665.Google Scholar
  22. Despard, M. R., Nafziger-Mayegun, R. N., Adjabeng, B. K., & Ansong, D. (2017). Does revenue diversification predict financial vulnerability among non-governmental organizations in sub-Saharan Africa? Voluntas: International Journal of Voluntary and Nonprofit Organizations, 28(5), 2124–2144.Google Scholar
  23. DiMaggio, P., & Powell, W. W. (1983). The iron cage revisited: Collective rationality and institutional isomorphism in organizational fields. American Sociological Review, 48(2), 147–160.Google Scholar
  24. Fischer, R. L., Wilsker, A., & Young, D. R. (2011). Exploring the revenue mix of nonprofit organizations: Does it relate to publicness? Nonprofit and Voluntary Sector Quarterly, 40(4), 662–681.Google Scholar
  25. Fleiss, J. L., & Berlin, J. A. (2009). Effect sizes for dichotomous data. In H. Cooper, L. V. Hedges, & J. C. Valentine (Eds.), The handbook of research synthesis and meta-analysis (2nd ed., pp. 237–254). New York: Russell Sage Foundation.Google Scholar
  26. Foster, W., & Fine, G. (2007). How nonprofits get really big. Stanford Social Innovation Review, 5(2), 46–55.Google Scholar
  27. Foster, M. K., & Meinhard, A. G. (2005). Diversifying revenue sources in Canada: Are women’s voluntary organizations different? Nonprofit Management and Leadership, 16(1), 43–60.Google Scholar
  28. Froelich, K. A. (1999). Diversification of revenue strategies: Evolving resource dependence in nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 28(3), 246–268.Google Scholar
  29. Frumkin, P., & Keating, E. K. (2011). Diversification reconsidered: The risks and rewards of revenue concentration. Journal of Social Entrepreneurship, 2(2), 151–164.Google Scholar
  30. Geyskens, I., Krishnan, R., Steenkamp, J.-B. E. M., & Cunha, P. V. (2009). A review and evaluation of meta-analysis practices in management research. Journal of Management, 35(2), 393–419.Google Scholar
  31. Glass, G. V. (1976). Primary, secondary, and meta-analysis of research. Educational Researcher, 5(10), 3–8.Google Scholar
  32. Gordon, T. P., Fischer, M., Greenlee, J., & Keating, E. K. (2013). Warning signs: Nonprofit insolvency indicators. International Research Journal of Applied Finance, 4(3), 343–378.Google Scholar
  33. Grasse, N. J., Whaley, K. M., & Ihrke, D. M. (2016). Modern portfolio theory and nonprofit arts organizations: Identifying the efficient frontier. Nonprofit and Voluntary Sector Quarterly, 45(4), 825–843.Google Scholar
  34. Greenlee, J. S., & Trussel, J. M. (2000). Predicting the financial vulnerability of charitable organizations. Nonprofit Management and Leadership, 11(2), 199–210.Google Scholar
  35. Grønbjerg, K. A. (1993). Understanding nonprofit funding: Managing revenues in social services and community development organizations. San Francisco: Jossey-Bass.Google Scholar
  36. Hager, M. A. (2001). Financial vulnerability among arts organizations: A test of the Tuckman-Chang measures. Nonprofit and Voluntary Sector Quarterly, 30(2), 376–392.Google Scholar
  37. Hager, M. A., Galaskiewicz, J., & Larson, J. A. (2004). Structural embeddedness and the liability of newness among nonprofit organizations. Public Management Review, 6(2), 159–188.Google Scholar
  38. Hannan, M. T., & Freeman, J. (1983). The liability of newness: Age dependence in organizational death rates. American Sociological Review, 48(5), 692–710.Google Scholar
  39. Hodge, M., & Piccolo, R. (2005). Funding source, board investment techniques, and financial vulnerability in nonprofits. Nonprofit Management & Leadership, 16(2), 171–190.Google Scholar
  40. Jegers, M., & Verschueren, I. (2006). On the capital structure of non-profit organisations: An empirical study for Californian organisations. Financial Accountability & Management, 22(4), 309–329.Google Scholar
  41. Keating, E., Fischer, M., Gordon, T., & Greenlee, J. (2005). Assessing financial vulnerability in the nonprofit sector (Faculty Research Working Paper Series, Paper No. 27). Cambridge, MA: Hauser Center for Nonprofit Organizations.Google Scholar
  42. Kerlin, J. A., & Pollak, T. H. (2011). Nonprofit commercial revenue: A replacement for declining government grants and private contributions? American Review of Public Administration, 41(6), 686–704.Google Scholar
  43. Kingma, B. R. (1993). Portfolio theory and nonprofit financial stability. Nonprofit and Voluntary Sector Quarterly, 22(2), 105–119.Google Scholar
  44. Lam, M., & McDougle, L. (2016). Community variation in the financial health of nonprofit human service organizations: An examination of organizational and contextual effects. Nonprofit and Voluntary Sector Quarterly, 45(3), 500–525.Google Scholar
  45. Liang, K. Y., & Zeger, S. L. (1986). Longitudinal data analysis using generalized linear models. Biometrika, 73(1), 13–22.Google Scholar
  46. Light, P. C. (2004). Sustaining nonprofit performance: The case for capacity building and the evidence to support it. Washington, DC: Brookings Institution Press.Google Scholar
  47. Lin, W., & Wang, Q. (2016). What helped nonprofits weather the great recession? Evidence from human services and community improvement organizations. Nonprofit Management & Leadership, 26(3), 257–276.Google Scholar
  48. Lipsey, M. W. (2009). Identifying interesting variables and analysis opportunities. In H. Cooper, L. V. Hedges, & J. C. Valentine (Eds.), The handbook of research synthesis and meta-analysis (2nd ed., pp. 147–158). New York: Russell Sage Foundation.Google Scholar
  49. Lu, J. (2016). The philanthropic consequence of government grants to nonprofit organizations. Nonprofit Management and Leadership, 26(4), 381–400.Google Scholar
  50. Markowitz, H. (1952). Portfolio seclection. The Journal of Finance, 7(1), 77–91.Google Scholar
  51. Mayer, W. J., Wang, H., Egginton, J. F., & Flint, H. S. (2014). The impact of revenue diversification on expected revenue and volatility for nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 43(2), 374–392.Google Scholar
  52. Meyer, J. W., & Scott, W. R. (1992). Organizational environments: Ritual and rationality. Newcastle upon Tyne: Sage.Google Scholar
  53. Myser, S. (2016). Financial health of nonprofit organizations (Doctoral dissertation). University of Kansas.Google Scholar
  54. Pfeffer, J., & Salanick, G. R. (2003). The external control of organizations: A resource dependence perspective. Stanford, CA: Stanford University Press.Google Scholar
  55. Reed, J. G., & Baxter, P. M. (2009). Using reference databases. In H. Cooper, L. V. Hedges, & J. C. Valentine (Eds.), The handbook of research synthesis and meta-analysis (2nd ed., pp. 73–101). New York: Russell Sage Foundation.Google Scholar
  56. Ringquist, E. (2013). Meta-analysis for public management and policy. Hoboken: Wiley.Google Scholar
  57. Rodríguez, Í. G. (2017). Governance and financial vulnerability of nonprofit organizations: An analysis of the NGDOs from Spain and the United Kingdom (Doctoral dissertation). University of Burgos.Google Scholar
  58. Rothstein, H. R., Sutton, A. J., & Borenstein, M. (2006). Publication bias in meta-analysis: Prevention, assessment and adjustments. Hoboken: Wiley.Google Scholar
  59. Rushton, M., & Brooks, A. C. (2007). Government funding of nonprofit organizations. In D. Young (Ed.), Financing nonprofits: Putting theory into practice (pp. 69–91). Lanham: Altamira Press.Google Scholar
  60. Salamon, L. M. (1995). Partners in public service: Government-nonprofit relations in the modern welfare state. Baltimore, MD: Johns Hopkins University Press.Google Scholar
  61. Schmidt, F. L., & Hunter, J. E. (2014). Methods of meta-analysis: Correcting error and bias in research findings. Thousand Oaks, CA: Sage publications.Google Scholar
  62. Scott, W. R. (1987). Organizations: Rational, natural, and open systems. Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
  63. Shadish, W., & Haddock, C. K. (2009). Combining estimates of effect size. In H. Cooper, L. V. Hedges, & J. C. Valentine (Eds.), The handbook of research synthesis and meta-analysis (2nd ed., pp. 257–278). New York: Russell Sage Foundation.Google Scholar
  64. Silva, B., & Burger, R. (2015). Financial vulnerability: An empirical study of Ugandan NGOs (No. 1515). Liege: CIRIEC-Université de Liège.Google Scholar
  65. Small, H. (2003). Paradigms, citations, and maps of sciences: A personal history. Journal of the American Society for Information Science and Technology, 54(5), 394–399.Google Scholar
  66. Spyker, C., & Deol, H. (2014). Doing too much? Financial vulnerability of Canadian registered charities. In Presentation at 2014 Canadian Academic Accounting Association (CAAA) annual conference.Google Scholar
  67. Steinberg, R. (1990). Profits and incentive compensation in nonprofit firms. Nonprofit Management and Leadership, 1(2), 137–151.Google Scholar
  68. Stone, M. M., & Sandfort, J. R. (2009). Building a policy fields framework to inform research on nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 38(6), 1054–1075.Google Scholar
  69. Suárez, D. F., & Hwang, H. (2008). Civic engagement and nonprofit lobbying in California, 1998-2003. Nonprofit and Voluntary Sector Quarterly, 37(1), 93–112.Google Scholar
  70. Tevel, E., Katz, H., & Brock, D. M. (2015). Nonprofit financial vulnerability: Testing competing models, recommended improvements, and implications. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 26(6), 2500–2516.Google Scholar
  71. Trussel, J. M. (2002). Revisiting the prediction of financial vulnerability. Nonprofit Management & Leadership, 13(1), 17–31.Google Scholar
  72. Trussel, J. M., & Greenlee, J. (2004). A financial rating system for nonprofit organizations. Research in Government and Nonprofit Accounting, 11(1), 105–128.Google Scholar
  73. Tuckman, H. P., & Chang, C. F. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445–460.Google Scholar
  74. Tuckman, H. P., & Chang, C. F. (1992). Nonprofit equity: A behavioral model and its policy implications. Journal of Policy Analysis and Management, 11(1), 76–87.Google Scholar
  75. von Schnurbein, G., & Fritz, T. M. (2017). Benefits and drivers of nonprofit revenue concentration. Nonprofit and Voluntary Sector Quarterly, 46(5), 922–943.Google Scholar
  76. Weisbrod, B. A. (1998). To profit or not to profit: The commercial transformation of the nonprofit sector. New York: Cambridge University Press.Google Scholar
  77. Wicker, P., & Breuer, C. (2013). Understanding the importance of organizational resources to explain organizational problems: Evidence from nonprofit sport clubs in Germany. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 24(2), 461–484.Google Scholar
  78. Wicker, P., & Breuer, C. (2014). Examining the financial condition of sport governing bodies: The effects of revenue diversification and organizational success factors. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 25(4), 929–948.Google Scholar

Copyright information

© International Society for Third-Sector Research and The Johns Hopkins University 2019

Authors and Affiliations

  1. 1.School of Public Affairs and AdministrationRutgers University-NewarkNewarkUSA
  2. 2.School of Government and Center for Chinese Public Administration ResearchSun Yat-sen UniversityGuangzhouPeople’s Republic of China

Personalised recommendations

Cite article

Buy options