Revenue Structure and Spending Behavior in Nonprofit Organizations

Abstract

Nonprofit organizations (NPOs) rely on multiple funding sources to meet organizational needs; and, heavy reliance on any one revenue source can limit an NPO’s ability to allocate funding. As such, in this study, we examine the association between funding source and spending behavior in a national sample of NPOs from 2008 to 2012. Our sample consists of 51,812 observations from 16,035 unique NPOs. Using Tobit maximum likelihood estimation, we find that NPOs that rely on, both, restricted and nonrestricted revenue sources are more limited in their ability to spend on administrative needs, whereas donation income restricts personnel spending of compensation. Revenue diversification, though, can help NPOs overcome this limitation and can provide NPOs with greater spending flexibility. Our findings also show, however, that these results differ for NPO hospitals and universities.