What Affects the Strategic Priority of Fundraising? A Longitudinal Study of Art, Culture and Humanity Organizations’ Fundraising Expenses in the USA

Abstract

Fundraising is a crucial activity for many nonprofit organizations. However, scant research has examined how the strategic priority of fundraising activities may vary across organizations and over time. This study addresses this gap in knowledge by examining how economic and organization-specific financial conditions predict the priority of fundraising in a nonprofit organization. In particular, this study examines the changes in the ratio of art, culture and humanities organizations’ fundraising expenses to their total expenditure during the period of 2005–2012, which includes the great recession of 2007–2009. The findings reveal that, when facing an economic crisis, the ratio of fundraising expense to total expenditure increases, suggesting that fundraising becomes a higher priority under a hostile economic condition. The analysis also reveals differences in nonprofits’ reaction to recession depending on their revenue mix, with donative nonprofits reacting more sensitively than commercial nonprofits.

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Notes

  1. 1.

    For instance, visit Charity Navigator at https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=48.

  2. 2.

    This study considers the county-level economic data, the lowest layer that is available.

  3. 3.

    Some county dummy variables and all the state dummy variables were automatically dropped due to multicollinearity.

  4. 4.

    We also include the two sets of state and county dummy variables following the federal information processing standards (FIPS) code because the economic condition where an organization is located is a county based. The two sets can control for possible county-specific effects in terms of poverty, unemployment rates and median income.

  5. 5.

    The empirical model includes a 1-year lagged variable for an organization’s deficit level and the fiscal year of this variable is 2004.

  6. 6.

    The sample size in the Tobit MLE regression result is 4742 observations because some observations were lost when lagged terms were used.

  7. 7.

    As a robustness check, the last specification considers the linear year trend using a discrete variable (2005 = 1, 2006 = 2, …, 2012 = 8) and its interaction terms with a set of county dummy variables. Since the effects of economic recession are various in the regions, this specification accounts for the possibility that different effects of economic recession across regions might experience different fundraising expenses. The interaction terms rule out the differences within counties as recession might have hit some regions harder than others (Krishnan and Yetman 2011; Wing et al. 2006; Yetman and Yetman 2012). The inclusion of these variables allows for the measurement of the effects of economic recession while controlling for the differences across the years and the unobserved heterogeneity in economic recession. The empirical result considering the linear year trend has provided the same coefficients of the variables except for the dummy variable of economic recession. Upon any request, this result can be provided as well.

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Correspondence to Young-Joo Lee.

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Lee, Y., Shon, J. What Affects the Strategic Priority of Fundraising? A Longitudinal Study of Art, Culture and Humanity Organizations’ Fundraising Expenses in the USA. Voluntas 29, 951–961 (2018). https://doi.org/10.1007/s11266-018-9982-1

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Keywords

  • Fundraising
  • Recession
  • Revenue mix
  • Resource allocation and organizational priority