Impact of Revenue Diversification on Financial Health with Mediating Role of Felxibility: Non-Profit Organizations of Afghanistan

Abstract

As nonprofit organizations continue to be faced with financial difficulties especially in the context of Afghanistan during recent years. Although several studies have found that revenue diversification has a significant impact on the financial health of nonprofits but studying organizational flexibility as a common mediating variable that defines the organizations’ access to multiple options of funding, risk tolerance, autonomy, and, community connectedness is not observed or at least not measured yet. Thus, this study aimed to test the effects of the mediating role of flexibility on the relationship between dependent and independent variables through hypothesis testing, therefore the positivism philosophy of the research with a deductive approach and quantitative methodology was applied. The data of this study has been collected from among the top nonprofit organization's senior positions with 124 employees. The result of the study indicates that nonprofits with several funding resources are less vulnerable to financial shocks as the revenue diversification provides more options for funding which consequently increase the risk tolerance, independence, and community connectedness “widening of coverage area” of the organization. Being overly dependent on a limited number of resources is risky, because if a major donor of the organization declines or stops its funding, then it is more likely that the organization face financial problems. But the nonprofit organizations should be vigilant of the risk–reward of revenue diversification as well. Keywords: Revenue diversification, Financial Health, Organizational flexibility, Nonprofit organizations. JEL Code: G01, G32, D24, H20, D23, L21.As nonprofit organizations continue to be faced with financial difficulties especially in the context of Afghanistan during recent years. Although several studies have found that revenue diversification has a significant impact on the financial health of nonprofits but studying organizational flexibility as a common mediating variable that defines the organizations’ access to multiple options of funding, risk tolerance, autonomy, and, community connectedness is not observed or at least not measured yet. Thus, this study aimed to test the effects of the mediating role of flexibility on the relationship between dependent and independent variables through hypothesis testing, therefore the positivism philosophy of the research with a deductive approach and quantitative methodology was applied. The data of this study has been collected from among the top nonprofit organization's senior positions with 124 employees. The result of the study indicates that nonprofits with several funding resources are less vulnerable to financial shocks as the revenue diversification provides more options for funding which consequently increase the risk tolerance, independence, and community connectedness “widening of coverage area” of the organization. Being overly dependent on a limited number of resources is risky, because if a major donor of the organization declines or stops its funding, then it is more likely that the organization face financial problems. But the nonprofit organizations should be vigilant of the risk–reward of revenue diversification as well. Keywords: Revenue diversification, Financial Health, Organizational flexibility, Nonprofit organizations. JEL Code: G01, G32, D24, H20, D23, L21.