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Restricted Revenues and Nonprofit Service Delivery: The Roles of Financial Discretion

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Abstract

The proposition that restricted revenues inhibit nonprofit service delivery by reducing their financial discretion has accumulated in the academic literature but has not been empirically tested. Using a sample of arts and culture nonprofits in the USA, this study examines whether the proposition is upheld through a resource dependence lens. The results suggest that restricted revenues limit nonprofits’ efforts to seek other sources of revenue, which leads to a decrease in nonprofit service delivery. The results also suggest that this indirect effect holds and is even more pronounced in donative and performing arts nonprofits. Restricted revenues, however, do not curb nonprofits’ administrative expenses, and an increase in administrative expenses does not lead to an increase in nonprofit service delivery. The prevailing notion that restricted revenues force nonprofits to shift their cost structures away from administrative expenses may need to be reconsidered. Overall, this study partially supports the proposition that financial discretion plays a role in explaining the negative relationship between restricted revenues and nonprofit service delivery.

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Notes

  1. The results and details of the checks are available upon request.

  2. This study conducts the robustness checks on the indirect effect of overhead expenses. The results persist.

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Acknowledgements

The data used for this study was provided by SMU DataArts, an organization created to strengthen arts and culture by documenting and disseminating information on the arts and culture sector. Any interpretation of the data is the view of the author and does not reflect the views of SMU DataArts. For more information on SMU DataArts, visit www.culturaldata.org.

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This study was not funded by any source.

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  1. Public Administration Program, University of Hawai‘i at Mānoa, 2424 Maile Way, Saunders Hall 631, Honolulu, HI, 96822, USA

    ChiaKo Hung

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Hung, C. Restricted Revenues and Nonprofit Service Delivery: The Roles of Financial Discretion. Voluntas 32, 136–150 (2021). https://doi.org/10.1007/s11266-020-00286-7

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