Donor Influence on Long-Term Innovation Within Nonprofit Organizations

Abstract

We examine how donors influence nonprofit long-term product innovation by estimating a fixed-effects model using longitudinal data on a sample of nonprofit organizations. Innovation requires multiyear funding, but some donations to nonprofit organizations are a transient source of funding. Consistently, we find that when nonprofit organizations increasingly rely on donations from external private sources of funding, long-term innovation declines. However, as the nonprofit organization generates revenue from more predictable relational customers, concern associated with transient donations is attenuated. Moreover, in contrast to dependence on external donations deterring innovation, when a nonprofit grows their donor network, it increasingly emphasizes the long-term innovative interests of donors. The donor network offers social capital that provides managers with confidence and access to new information necessary to pursue innovation.