Association for Public Policy Analysis & Management

At least anecdotally, there is a common perception among nonprofit managers that when a neighboring organization launches a capital campaign, the potential effects on an organization’s own fundraising will be devastating. Capital campaigns have the goal of attracting large amounts of funds in short periods of time.  Thus, many managers view them as being potentially disruptive to the natural distribution of funds to area nonprofits by disproportionately directing area donations to a single organization. The idea that there is a finite pool of resources for nonprofit organizations in a local ecology is supported by theories of organizational ecology, namely population ecology, which suggests that the distribution of organizations in a local ecology is to some degree a function of (probable) resource scarcity and the level of competition for those resources.  Therefore, shifts in the allocation of resources to neighboring organizations can result in changes not only to the performance of individual nonprofits, but also in the make-up of a local nonprofit ecology.

This study seeks to examine the effects of capital campaigns on the survival of other local organizations, and the entrance of new organizations. The analysis uses data from a randomly sampled set of nonprofit arts organizations in 48 unique counties that had capital campaigns between 1994 and 2007, IRS Form 990 data on nonprofit arts organizations in each county, and county-level data measuring environmental factors. The methodology for testing the study’s hypotheses consists of estimating a series of logistic regressions that predict the effect of a capital campaign and the theorized external and internal factors on nonprofit organizational mortality.

This study contributes to literature on nonprofit organizational survival by examining what types of external and internal factors influence whether a nonprofit survives. Further, the study contributes to the literature on fundraising effects. In understanding fundraising effects, scholars have typically focused on the effects of public subsidies on private giving (i.e., the “crowding-in” or “crowding-out” effect), or how an organization’s own fundraising activity affects donation performance (i.e., fundraising efficiency). A handful of studies have focused on how (and if) the fundraising activity of one nonprofit affects the success of another nonprofit in the same market. 

This study provides new insight into the factors that affect nonprofit survival. The study examines how an external “shock” -- a capital campaign -- affects the survival of other organizations in geographic area where the organization that pursues the capital campaign exists. The study also examines relations between nonprofit mortality and market forces, such as the economic and demographic conditions of geographic regions, which surprisingly has not been empirically investigated in previous studies on nonprofit mortality, but are relevant for understanding how the demand for an organization’s services can change. Finally, the study provides clarity on fundraising effects of neighboring nonprofits, an area of literature that is still undeveloped.