Income diversity and nonprofit financial health

Using a select set of literature, this chapter reviews the progress in the line of research focusing on nonprofit income diversity and issues of financial health. General consensus exists on the diversity of revenue dependence across nonprofit fields, revealing heavy dependence on commercial revenue by some, on private contributions by others and diversified sources by others. We also address recent developments in theory building and testing that help explain these patterns. Although the literature on revenue diversification reveal mixed results, the general pattern shows a positive association between diversification and financial stability. However, close attention to the composition of an income portfolio is needed. Conversely, revenue concentration is generally associated with financial growth, albeit tempered by an increasing recognition of the limits of persistently concentrated revenue portfolios. We conclude by addressing the merits and gaps in current research, including the quality of current data, its access, scope and specificity.