Donating funds and ideas to long-term innovation in non-profit organizations

Abstract

We examine how donors influence long-term product innovation in non-profit organizations by estimating a fixed-effects model using longitudinal data on a sample of nonprofit organizations. Innovation requires multiyear funding, but donors to nonprofit organizations are an unreliable source of funding. Consistently, we find that when a nonprofit organization is increasingly supported by external donor funds, it reduces long-term innovation. However, as the nonprofit becomes more dependent on stable sources of earned revenue, such as subscriber and member revenue, concern associated with donor funding support is attenuated. Moreover, in contrast to donor funding support deterring innovation, when a nonprofit attracts more individual donors it increasingly emphasizes long- term innovation because donors have long-term aspirations for the non-profit and offer non-financial resources and ideas to the innovative process.