A Study On The Relationship Between Revenue Diversification And Financial Stability Of NPOs In China

This paper studies the impact of revenue structure on financial stability of NPOs in China.NPO revenue comes from a variety of sources,according to the resource dependence theory,diversification of revenue sources can effectively reduce the volatility of revenue and contribute to the financial stability of the organization,help organizations better fulfill their charitable mission.But the existing literature suggests that the diversification of revenue structure not only reduces the revenue fluctuation,but also increases the management cost of the organization.Too many sources of income can reduce organizational independence,therefore the impact of revenue diversity on the financial stability of an organization is mix.For Chinese NPOs,the relationship between revenue diversity and organizational financial stability lacks empirical research evidence.Therefore,after reviewing previous studies on revenue diversity,taking Chinese NPOs as samples to study the relationship as a further study.Nonprofits generate revenue primarily by raising funds from the public,according to their fund raising methods NPOs can be divided into public and non-public organizations.Compared with public NPOs,non-public NPOs are restricted in the object of donation and the way of fund raising.At the same time,whether the non-profit organization has the tax preference qualification also affects the donor's willingness to donate,for different types of non-profit organizations,significant differences were found through T test,therefore we further investigate whether there are differences in the relationship between revenue diversity and financial stability according to different types of NPOs.Taking publicly available NPOs financial information as an example,this paper manually collected the annual report data of more than 6,800 NPOs from 2013 to 2017 as study sample.The result of this research shows that NPOs with concentrated(as opposed to diversify)revenue sources have more volatile income,meaning they are less financially stable.Organizations with a concentration of revenue are likely to experience financial fluctuations as a result of sudden discontinuation of donations by donors due to the lack of alternative sources of income.At the saine time,as non-public NPOs are not allowed to solicit donations from the public and the donators are limited,revenue concentration is more likely to reduce financial stability.Nonprofits that qualify for tax incentives can reflect better internal controls,help themselves and their donors pay less in taxes,and generate more revenue.From the perspective of tax exemption and pre-tax deduction for donors,it is found that the income concentration of non-profit organizations without tax preference is more likely to reduce their financial stability.In order to operate the sustainable and stable development of organizations,NPOs need not only the construction of institutional environment,but also the effective acquisition of internal and external resources by themselves.The political connections of the directors of the people in charge are an important social resource,they can connect the NPO with the government and the outside world through themselves.In the past,most studies on political association focused on enterprises,however in the context of China's transition period,How does political connection affect the development of non-profit organizations?How does political affiliation affect the effect of revenue structure on financial stability need further exploration.The different positioning of the government in the development of NPOs is a basic factor that determines the difference between Chinese NPOs and western NPOs.Compared with the NPOs in European and American countries,China's NPOs have a special dual nature of government and public.From the perspective of the development process of China's NPOs,they are to a large extent the product of reform and opening up.Therefore,it is necessary to study the influence of political connection in China's NPOs.We measure political connection by whether the person in charge has a political background.The study found that the political connection of the person in charge had the opposite effect on NPOs.The person in charge of the cadre above the provincial level can effectively reduce the harm of revenue concentration to financial stability.On the one hand,the person in charge can ensure the predictability and stability of this single source of revenue through their own influence.In order not affect financial stability.On the other hand,when an organization encounters a sharp decrease in revenue or a sharp increase in expenditure,those people can use th eir political connections to help organizations quickly obtain alternative sources of revenue to ensure its financial stability.On the contrary,people in charge are also working as a national stuff will increase the financial volatility of revenue concentration.Through the test,we found that the organizational administrative cost rate of the person in charge of the current national staff is higher.That is to say,the management efficiency is relatively lower and there are internal control problems.In China,the government implements a dual management system for NPOs,which leads to an unclear division of labor among departments,making it difficult for organizations to carry out activities effectively.Some business competent units have too much interference in the organization management,making organizations almost lose their autonomy.Political connection is a double-edged sword,it can help the organization to obtain social resources,but sometimes may also reduce the independence of the organization.Therefore,the person in charge of the board has different impacts on the stability of the organization from the perspective of two dimensions of political connection.The research's findings supplement the academic research related to the financial stability of NPOs.The study of this paper finds that the diversification of revenue sources will significantly affect the financial stability of the organization.This is of reference significance for China's NPOs.Meanwhile,this paper uses the unique data of China NPO,exploring the impact of political affiliation on NPOs.The research in this paper not only fills in the gap of big data empirical research taking C hina's NPOs as the sample,but also enriches the knowledge of China's NPO governance and supplements the evidence of the regulatory mechanism of different political associations in the performance of non-profit organizations.It has certain reference significance for the governance practice of NPOs.