Revenue Diversification in Health and Human Services Nonprofits.

The nonprofit sector is increasingly growing and becoming more important to the United States society and economy. Concurrent with this growth, nonprofits have assumed a larger role in mitigating societal issues and are increasingly being relied upon to provide services that have traditionally been supplied by the government or in some cases not addressed at all. The recent economic recession has highlighted just how vulnerable many of these nonprofit organizations are to fluctuations in the economic cycle. The negative impact the current economic recession has had on the nonprofit sector suggests that the traditional nonprofit revenue model must be reevaluated. Revenue from donations has traditionally been considered the most preferred and only source of revenue for nonprofits. However, due to increased competition, economic downturns, and additional internal and external factors, nonprofit organizations are increasingly searching for supplementary sources of revenue such as government grants, earned income, and investment income. Therefore, the purpose of this study is to appraise whether revenue diversification in health and human services nonprofits will reduce revenue volatility taking into account various organization and economic specific factors. To approach this study, financial data were obtained from the Core Files collected by the National Center for Charitable Statistics (NCCS). NCCS extracts data from the nonprofit Internal Revenue Service (IRS) Form 990. Building on a prior study by Carroll and Stater (2008), this paper analyzes a benchmark econometric model derived from the Carroll and Stater study, and offers an additional model for measuring the impact of revenue diversification on revenue volatility. Il