Two essays on nonprofit finance

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Date
2016-05-06
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American English
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Ph.D.
Degree Year
2016
Department
Lilly Family School of Philanthropy
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Indiana University
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Abstract

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.

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Indiana University-Purdue University Indianapolis (IUPUI)
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