Managing the Market-Mission Tension: When Does Commercial Revenue Crowd out Charitable Contributions?

Abstract

The growing commercialization of the nonprofit sector, nonprofits’ reliance on revenue from commercial activities, has aroused substantial research and practical attention. There is a concern that commercial revenue will crowd out charitable contributions and thus undermine the civic and philanthropic nature of the nonprofit sector. However, previous empirical studies report mixed findings concerning the interaction between these two revenue sources. In this study, informed by the notion of legitimacy threshold, we propose that the effect of commercial revenue on charitable contributions follows an inverted U-shaped pattern. Our analysis of a longitudinal dataset of U.S. arts and cultural nonprofits over the period of 2008–2016 confirms the curvilinear association: low levels of commercial revenue crowd in charitable contributions, while commercial revenue greater than 25% of total revenue crowds out charitable contributions. The finding contributes new knowledge to the literature and offers practical implications.