Financing social missions: essays on the role of commercialization in nonprofit organizations in the U.S.

According to theories of government and market failure, nonprofit organizations play a critical role in delivering public goods and social services. For achieving important social missions, there are multiple challenges (such as unstable government resources, limited amounts of donation, and increasing market competition) that necessitate the need for commercialization within the nonprofit sector. Recently, commercialization in the sector has evolved into the establishment of an innovative type of organization—the social enterprise. Though early scholars have raised concerns regarding nonprofit commercialization and enterprising, there is insufficient empirical evidence to make definitive claims regarding the relationship between commercialization and nonprofit organizations with social missions. Thus, this dissertation seeks to add to the literature and answer the questions: What are the costs and benefits of commercialization in nonprofit organizations? Particularly, how, if at all, does commercialization influence public perceptions of nonprofit legitimacy? And, how, if at all, does commercialization influence a nonprofit’s ability to garner financial resources? Two empirical studies are developed focusing on two different types of nonprofit industries. The first looks at profit-seeking intentions in the daycare and recycling industries, while the second looks at actual profit generation from commercialization in higher education. The examination starts with an online survey experiment, which tests the perceptual reactions of people toward social enterprises. Research suggests that people’s perceptions of an organization will largely determine whether they are willing to interact with it; and, given that the public is likely to be less familiar with social enterprises, information about the sector will likely act as an important cognitive heuristic for people to evaluate social enterprises. The study illustrates how sector stereotypes influence how people perceive nonprofit and for-profit social enterprises. Results from the experiment show that there is a significant effect of sector stereotype on people’s perception and willingness to interact with the nonprofit or for-profit social enterprise, which can be explained by people’s psychological repugnancy against profit-seeking intentions. The second study addresses how the capital market reacts to revenues from research commercialization in nonprofit universities. Nonprofit universities increasingly rely on the issuance of tax-exempt bonds to generate capital. Therefore, financial assessments of nonprofit universities by the capital market (measured by their credit rating) has a significant influence on the capacity of these organizations to borrow for their mission. Encouraged by government policy, universities are actively engaging into research commercialization activities such as technology transfer. Research commercialization might largely benefit universities’ credit ratings because it brings both pragmatic and moral legitimacy. The hypothesis is supported by evidence from pooled university data from 2007 to 2016. Results from my dissertation raise new insights on the role of commercialization in the nonprofit sector. Overall, my dissertation helps to confirm the illegitimacy of commercialization in the social service market, and, it explores conditions that mitigate incompatibility between commercialization and social missions.Ph.D.Includes bibliographical reference