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Abstract
Nonprofit organizations widely adopt revenue diversification with the belief that it improves their fiscal stability and increases the provision of charitable services. However, this belief tells us little about the effects of revenue diversification during crises. This dissertation examines the impact of revenue diversification on revenue volatility, particularly in the context of systematic risks such as the 2008 Great Recession, using panel data from 2004 to 2012. The findings reveal that while revenue diversification lowers revenue volatility under normal conditions, this effect diminishes during economic downturns, compared to the levels observed before the recession. This finding challenges the assumption that diversification is a universally effective financial strategy. Second, this study identifies variations in the stabilizing effects of different revenue sources, demonstrating that certain revenue sources offer greater financial resilience than others during economic downturns. These findings underscore the importance of understanding the varying stability of revenue streams and their compositions to ensure financial resilience in times of crisis. Third, the findings highlight that the effectiveness of revenue diversification depends on the nature of nonprofit services, with organizations providing crisis-responsive services exhibiting greater financial stability. This dissertation concludes that a one-size-fits-all approach to revenue diversification can yield unintended and often detrimental outcomes. Moreover, the study contributes to the theoretical discourse on nonprofit financial management by integrating insights from Resource Dependence Theory (RDT), Modern Portfolio Theory (MPT), and Benefits Theory to explain the conditional effectiveness of revenue diversification. Finally, it offers practical guidance for nonprofit leaders, emphasizing the need for strategic revenue composition rather than indiscriminate diversification to enhance financial resilience in times of economic uncertainty.