How Does Nonprofit Revenue Diversification Affect Revenue Volatility Before,During,and After External Economic Crisis?

Abstract

Nonprofits widely adopt revenue diversification with the belief that it improves their fiscal health and promotes a higher output of charitable services. However, this belief tells us little about the effects of revenue diversification during crises. This study, using panel data from 2004 to 2012, examines how nonprofit revenue diversification affects revenue volatility in the context of systematic risks, such as the 2008 Great Recession. The results reveal that while revenue diversification effectively lowers revenue volatility under normal conditions, this effect did not persist during and after the Recession, although certain revenue sources were shown to be more efficient in reducing volatility during economic downturns. These findings underscore the importance of understanding the varying stability of revenue streams and their compositions to ensure financial resilience in times of crisis. Finally, this study offers both theoretical insights and practical guidance for nonprofit organizations seeking financial resilience amid economic turmoil.

Keywords

nonprofit organization revenue diversification revenue sources revenue volatility risk management

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