Indiana University-Purdue University Indianapolis (IUPUI)This dissertation consists of two essays on nonprofit finance. Nonprofit finance
concerns obtaining and managing financial resources to support the social purposes of
nonprofit organizations. A unique feature of nonprofit finance is that nonprofits derive
revenue from a variety of sources. Nonprofit finance thus involves answering two
fundamental questions: What is the optimal combination of revenue sources that supports
a nonprofit to achieve its mission? Where and how to obtain the revenue sources? The
two dissertation essays address these two questions respectively.
The first essay, titled “Modern Portfolio Theory and the Optimization of
Nonprofit Revenue Mix,” is among the first to properly apply modern portfolio theory
(MPT) from corporate finance to nonprofit finance. By analyzing nonprofit tax return
data, I estimate the expected return and risk characteristics for five nonprofit revenue
sources as well as the correlations among these returns. I use the estimates to identify the
efficient frontiers for nonprofits in different industries, based on which nonprofit
managers can select an optimal portfolio that can minimize the risk given a preferred
level of service provision or maximize the return given a level of risk. The findings also
pose a challenge to the predominant approach used in previous nonprofit finance studies
(Herfindahl-Hirschman Index) and suggest that MPT is theoretically and practically more
helpful in guiding nonprofit revenue management.
The second essay, titled “Charitable Giving in Nonprofit Service Associations:
Identities, Incentives, and Gender Differences,” concerns nonprofit resource attainment,
specifically, how do decisionmaking contexts and framing affect donations. Membership in a service club is characterized by two essential elements: members’ shared interest in
the club’s charitable mission; and private benefits that often come as a result of social
interactions with other members, such as networking, fellowship, and fun. A laboratory
experiment was designed to examine 1) whether membership in a service club makes a
person more generous and 2) the effect of service club membership—stressing either the
service or socializing aspects—on individual support for collective goods. The study
finds that female individuals are the least generous when they are reminded of the
socializing aspect of service-club membership