The Formation, Performance, and Strategic Decisions of Nonprofits

Abstract

This dissertation includes three essays about nonprofit organizations. The first essay investigates how the availability of financial and intellectual capital in the macro-environment influences the formation of nonprofit organizations. The analysis is an extension of Weisbrod's (1975) Heterogeneity Hypothesis and Ben-Ner and van Hoomissen's (1991) "social cohesion" principle. Findings indicate financial capital and intellectual capital are important to the formation of nonprofits, but the strength and direction of their influence varies by industry. The second essay applies Stakeholder Theory to predict the influence of board members, donors, and beneficiaries on nonprofits' performance. The study incorporates 134 charities from six different industries over a five year period and finds nonprofit performance is driven by the interests of the most salient stakeholders. Furthermore, the analysis indicates nonprofit stakeholders have the ability to control the behaviors of managers; behaviors which are not necessarily aligned with mission statements. No evidence, however, suggests salient stakeholders with shared interests collaborate for mutual benefit. Stakeholder Theory is also used in the third essay to predict the moderating role stakeholders fulfill in the relationship between environmental uncertainty and nonprofits' strategic decisions. The study incorporates the same database as the second essay and discovers the influence of environmental uncertainty on nonprofits' strategic decision depends on the ability of salient stakeholders to diversify their interests. The identified effect encourages Stakeholder Theory applications adopt a dual-perspective approach to the concept of salience; such applications need to account for the salience of the stakeholder to the organization and the salience of the organization to the stakeholder.