Nonprofit Competitive Advantage in Grant Markets: Implications of Network Embeddedness

Abstract

This paper empirically addresses the effects that the network embeddedness of nonprofit organizations has on their ability to access philanthropic resources within competitive markets. Implicit in many criticisms of institutional philanthropy is the normative belief that nonprofits that are not ‘in’ the existing networks of foundation boards and staffs will be otherwise excluded from the grants process. We relate this proposition to theory on status signaling and test it in a network of nonprofits linked by grants from common foundations in metropolitan Atlanta during 2000 and 2005. Through this analysis we find that observable characteristics of nonprofits including age, size and their financial operating ratios explain success in grant markets. However, the reputation effects from greater network centrality in previous time periods provide additional advantages in securing resources. Our findings raise questions about the implications of socially constructed entrance barriers that may prevent otherwise competitive organizations from accessing financial resources.