Recent economic events have shown us how important it is to diversify revenue and not be dependent on just one source of income. modern portfolio theory; nonprofit financial health; revenue diversification; ASJC Scopus subject areas. Modern portfolio theory suggests that more diversification reduces volatility at the expense of. From portfolio theory comes the idea that revenue diversification can reduce financial vulnerability to recession and other external economic shocks. However, empirical studies on the relationship between revenue diversification and financial health have produced mixed results. In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. The diversification of revenue sources for charitable nonprofits has been written about extensively. Revenue diversification is a critical component of overall revenue mix, and it requires a holistic approach based on five key revenue diversification levers: continued education, research and innovation, services, asset utilization, and partners (see Figure 1). INTRODUCTION: THE THEORY OF RENT SEEKING JNSOFAR as economists attempt to explain political phenomena, they Ado so in terms of behavior to which they refer as rational rent-seeking action on the part of individuals who wish to manipulate the state. (ii) Revenue diversification of banks supports the portfolio investment theory in risk management, which means that diversified sources of income have apparent influence in risk. The theory's central proposition is that investors can maximize the expected return rate and minimize risk by choosing the right combinations of various assets in the portfolio. through the conceptual lens of modern portfolio theory. Based on contingency theory, it is assumed that different missions are . As such, policies which . revenue diversification, both lead to improvement in risk-adjusted profitability as well as reduce the likelihood of insolvency of banks. This study reviews the influence of revenue stream diversification on financial health. 10.1111/pbaf.12309 . The authors conclude that the effect of diversification of revenue varies when the size of nonprofit organization are put into considerations. Effect on sales team compensation and performance objectives. Although these findings are only suggestive, this study is a significant step forward in the development of a theory of nonprofit financial performance including the analysis of revenue diversification which 11 Revenue diversification in emerging market banks: implications for financial performance. 10.1177 . The trend of revenue diversification, according to the portfolio theory, has far-reaching implication for public financial management as it may change revenue stability, which has been an important policy objective for state and local government administrators. In recent decades, revenue diversification has become a prevalent practice in state and local government finance. The purpose of this single-case study was to explore revenue diversification strategies used by 3 leaders of a nonprofit organization in western California of the United States using Markowitz's modern portfolio theory as the conceptual lens. REVENUE DIVERSIFICATION By JOHN A. C. CONYBEARE 1. We find that this relationship should not be taken for granted. That definition tells us what diversification strategy is, but it doesn't provide any valuable insight into why it's an ideal business growth strategy for some companies or how it's implemented. Correlation research design was used. It is a meta-analysis of previous studies that have studied the relationship. The authors conclude that the effect of diversification of revenue varies when the size of nonprofit organization are put into considerations. increasing revenue diversification in the . Agency cost theory 4 Classical diversification hypothesis 11 Competition stability hypothesis 3 Market power theory 3 Modern portfolio theory 30 Theory offinancial intermediation 7 . Trends show that suburbs with higher increases in diversification . We use different measures of revenue diversification and rely on audited financial information to develop general fund-based and government-wide budgetary solvency measures for more than 500 midsized and large cities in the U.S. from 2006 to 2012. explore revenue diversification strategies that leaders of small NPOs can use to minimize organizational risk. As a result, public higher education institutions have been under increasing pressure to diversify their funding sources through tuition fees and other nonpublic revenues. Business-level product diversification - Expanding into a new segment of an industry that the company is already operating in. Bank revenue diversification has become important for research of bank performance due to the increased use of this strategy in recent years. Consistent with traditional portfolio theory, the results show that loan portfolio diversification leads to improvements in bank stability, as measured by the Z-score index, as . Saoussen Ben Gamra * Dominique Plihon ** Abstract. The concept of revenue diversification (RD) is grounded on Markowitz's (1952) Modern Portfolio Theory. Value: The study adds value to the theory building and extend knowledge frontier in diversification-performance relationships, while providing an evidence-based integrated theoretical framework . It aims to maximize returns by investing in . PMAP Publications. by Howard Chernick and Andrew Reschovsky. The key findings are: (i) There is a significant positive association of market competition in risk-taking. Find the latest published documents for revenue diversification, Related hot topics, top authors, the most cited documents, and related journals . Revenue Diversification in Large U.S. Cities. revenue diversification could help NGOs to maintain sta-bility through soliciting funding from a variety of sources. The trend of revenue diversification, according to the portfolio theory, has far-reaching implication for public financial management as it may change revenue stability, which has been an important policy objective for state and local government administrators. In this context, rationales for diversification are discussed including portfolio theory and resource dependence theory. This study examines how different types of organizational missions affect the level of revenue diversification of organizations in one industry, a question that was neglected in previous research. Resource dependence theory states that an organization is controlled by the sources of funding on which they rely to operate. stakeholders enhance revenue diversification; and (d) revenue diversification does not help organizations maintain financially sustainable. This study examines the trends in revenue diversification in approximately 240 suburban municipalities in the Chicago metropolitan region between 1988 and 1997. Similarly, from the perspective of portfolio theory, revenue diversification could be used to increase revenue stability and reduce financial risk by developing a mix or balance of multiple revenue sources (Froelich 1999; Mayer . This article investigates whether revenue diversification leads to greater stability in the revenue structures of nonprofit organizations. Article Revenue Diversification, Risk and Bank Performance of Vietnamese. The concept of revenue diversification (RD) is grounded on Markowitz's (1952) Modern Portfolio Theory. One of the ways in which the rent-seeking state may maximize the resources it extracts from taxpayers is through diversification of the tax revenue base. REVENUE DIVERSIFICATION The concept of revenue diversification is derived from Modern Portfolio Theory articulated by Markowitz (1952), which describes the process by which an investor selects a particular investment portfolio. To this end, we use a sample of 275 banks from fourteen MENA countries over 1990-2011. Our findings suggest that nonprofits can indeed reduce their revenue volatility through diversification, particularly by equalizing their reliance on earned income, investments, and contributions . Data Jimenez, Benedict and Afonso, Whitney, "Revisiting the theory of revenue diversification: Insights from an empirical analysis of municipal budgetary solvency" (2022). By understanding effective revenue diversification strategies . 2.1 Agency Theory The Berle and Means, (1932) and Smith, (1776) emphasized the separation mechanisms of proprietorship and control. The beneficial effects of diversified income portfolios are well documented in previous research on non-profit organizations. Shifting marketing emphasis from customer acquisition to retention. Precise measurement of revenue diversification in the budget portfolio, however, has not received much attention. 30. doi: 10.1111/pbaf.12309 This Article is brought to you for free and open access by the Department of Public Management and Policy at Horizontal Diversification. Those who control the resources hold the power. Previous studies informed by the public choice/fiscal illusion perspective suggest that diversification leads to unsustainable government expansion and budgetary imbalance. Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The theory's central proposition is that investors can maximize the . • The study then develops a conceptual model to assess the impact of changes in revenue diversification, as well changes in state policy and institutional context, on three financial and five educational outcomes during the recent recession. This article reflects on the institutional impact of those changes by analyzing a panel . explore revenue diversification strategies that leaders of small NPOs can use to minimize organizational risk. Analyzing a panel dataset of 200 commercial banks from all South Asian . Diversification, the 'fix' for concentration risk, is an idea that is sensible in theory but difficult in execution. 1. 2. • The results suggest that increased reliance on non-tax revenue sources, such as charges and fees, improves budgetary solvency. Portfolio and firm diversification theory and its impact on risk and return, (ii) deregulation of the international and Brazilian financial systems, and (iii) empirical evidence . This study explores how revenue diversification affects The concept of revenue diversification (RD) is grounded on Markowitz's (1952) Modern Portfolio Theory. Abstract Creating revenue diversification forces nonprofit leaders to create innovative programs and services, build resilience against adverse conditions, and establish a sustainable future. Main Menu; Earn Free Access; Upload Documents; Refer Your Friends; Earn Money; Become a Tutor; Scholarships; REVENUE DIVERSIFICATION By JOHN A. C. CONYBEARE I. Empirical evidence presented in this paper may help to explain the extent to which countries are able to engage in this form of rent seeking. Diversification is a technique that reduces risk by allocating investments across various financial instruments, industries, and other categories. Noted economist and laureate Harry Markowitz came up with a theory in 1952 which is today known as MPT (Modern Portfolio Theory). Normative theory suggests that nonprofits should concentrate on sources that are uniquely associated with the benefits to be afforded to a particular population group or groups. Most nonprofits can't manage all those different funding sources. Diversification strategy, as we already know, is a business growth strategy identified by a company developing new products in new markets. It then tests a model of revenue diversification's impact on tax effort using data from 1993 to 1997, and separated by home rule and non-home rule municipalities. Data were collected via in-depth semistructured interviews, and member checking was used to facilitate accuracy, . Details of theory is as below. Intelligent business owners diversify their revenue. The May 2020 Consensus Revenue Estimating Conference projected revenue declines of $3 billion in both Fiscal Year (FY)2020 and FY2021. This study explores . Modern portfolio theory suggests that more diversification reduces volatility at the expense of reduced expected revenue. Data were collected via in-depth semistructured interviews, and member checking was used to facilitate accuracy, . adequate financial resources. This research examines the consequences of revenue diversification on institutional financial and research outcomes at public research universities in the US, using hierarchical linear modeling, psychometric approaches, and mediation analysis. The problem is that some nonprofit managers lack strategies for developing a diversified financial portfolio to achieve sustainability. Social Sciences (miscellaneous) Access to Document. De Paula and Marques . The Role of Business Sophistication, Revenue Diversification, and Labor Relations on Firm Financing Choice} . The model estimation using the GMM system reveals that diversification, when taken as a whole, improves bank . A nonprofit's agility in reacting to environmental changes largely determines its success in fulfilling one's mission. This paper is a contribution to the ongoing debate on the benefits and drawbacks of bank revenue diversification. Revisiting the theory of revenue diversification: Insights from an empirical analysis of municipal budgetary solvency Public Budgeting & Finance . As far as market diversification goes, maybe this kitchen and bath retailer's focus was the 25 - 25 year-old age group who are involved in buying and stocking their first homes with items. By diversifying income streams, firms avoid unexpected downturns of the more accurately understand why revenue diversification is a sound strategy. Main Menu; by School; by Literature Title; by Subject; by Study Guides; Textbook Solutions Expert Tutors Earn. Data were gathered on 814 private, non-research universities from multiple sources including the Delta Cost Project dataset and the Integrated Postsecondary Education Data System. revenue collection on financial performance of Kisumu County Government. . a merger, or acquisition of another company. . In this context, rationales for diversification are discussed including portfolio theory and resource dependence theory. . This paper examines (1) whether revenue diversification leads to greater instability as represented by revenue volatility, and (2) whether revenue complexity produces fiscal illusion as represented… 130 Institutional Constraints, Rule‐Following, and Circumvention: Tax and Expenditure Limits and the Choice of Fiscal Tools During a Budget Crisis However, the authors acknowledge a need for further studies on the methodology of revenue diversification to develop an informed insight into how resource dependency theory can be used in managing the . theory is grounded on the premise that MFIs were established to fight poverty through empowering the poorest of the economically active poor (Marwa and Aziakpono, 2015; We investigate the relationship between revenue diversification and volatility for nonprofits. The purpose of this single-case study was to explore revenue diversification strategies used by 3 leaders of a nonprofit organization in western California of the United States using Markowitz\u27s modern portfolio theory as the conceptual lens. The concept of revenue diversification and financial portfolio theory have received increased academic attention in the non-profit sector during the last two decades with Chabotar [], Chang and Tuckman [], and Kingma [] making significant contributions amongst others.The main idea of this theory is that organizations try to diversify their income portfolios to be less susceptible to financial . That being said, diversification of revenue is not a one-size-fits-all solution to an organization's struggle to maintain growth. We investigate the relationship between revenue diversification and volatility for nonprofits. ABSTRACT The aim of this paper is to investigate the effects of revenue diversification on bank performance while shedding light on the impact of the shift towards non-interest income sources. Diversification Diversification is a portfolio allocation strategy that aims to minimize idiosyncratic risk by holding assets that are not perfectly positively correlated. Until the 1990s, the public finance literature treated revenue . Resource Dependency & Revenue Diversification Strategy Resource dependence theory (Pfeffer & Salancik, 1978) suggests that "the key to organizational survival is the ability to acquire and maintain resources" (p. 2). However, the authors acknowledge a need for further studies on the methodology of revenue diversification to develop an informed insight into how resource dependency theory can be used in managing the . " A Pure Theory of Local Expenditures . Diversification can occur at the business level or at the corporate level. The rationale behind this technique contends that a portfolio constructed of different . . The study targeted 577 personnel under Directorate of Revenue, Department of Finance and Planning Kisumu County Government. In theory, an organization can resist economic shocks by spreading out its income sources from a mixture of grants, donations, fees, corporate gifts, social enterprise, and special events. - Increased focus on customer experience. through the conceptual lens of modern portfolio theory. Theoretical Background The idea behind this research is to explore the relationship of corporate diversification on the practice of tax avoidance based on agency theory. A common path towards diversification is to reduce risk or volatility by investing in a variety of assets.If asset prices do not change in perfect synchrony, a diversified portfolio will have less variance than the weighted average variance of its constituent . Major Theories Concerning Revenue Diversification and Revenue Concentration Originally developed by Markowitz ( 1952 ), modern portfolio theory (MPT) describes how a risk-averse investor can select an optimal investment portfolio to maximize expected returns and minimize volatility. To start, a nonprofit must determine . . that revenue diversification is, indeed, a statistically significant determinant of debt per capita, which also has an indirect effect on property tax burdens, the cross-state study suggests that revenue diversification has a impact on certain statmitigating e-imposed fiscal rules, further The basic dimensions are the diversification of income sources and broadening within loan portfolio. This article examines whether revenue diversification or concentration strategies lead to greater mission outputs in a nonprofit context. INTRODUCTION: THE THEORY OF RENT SEEKING INSOFAR as economists attempt to explain political phenomena, they do so in terms of behavior to which they refer as rational rent-seeking action on the part of individuals who wish to manipulate the state. It is the first in the revenue diversification literature to consider the total revenues and costs of operating government and incorporates a broader base of tax and non-tax revenue sources including utilities. Using resource dependence theory as a guiding framework, two opposing hypotheses are tested to gain more insight into the diversification versus concentration dilemma. Existing theories of financial intermediation imply . . In short, revenue diversification is regarded as a cushion strategy for nonprofit organizations to battle against financial instability and uncertainty ( Kingma, 1993; Tuckman & Chang, 1991 ). Updated numbers from the August conference are a bit cheerier with a revenue decline of only $0.9 billion in FY2020 and $2.5 billion in FY2021 from January revenue estimates. In recent decades, revenue diversification has become a prevalent practice in state and local government finance. A guiding principle for much of this research is modern portfolio theory, the concept that one can minimize risk and maximize return through asset diversification. Download Free PDF Download PDF Download Free PDF View PDF. The study was anchored on revenue diversification and optimal taxation theories. The trend of revenue diversification, according to the portfolio theory, has far-reaching implication for public financial management as it may change revenue stability, which has been an important policy objective for state and local government administrators. Retaining existing customers will always be more cost effective than acquiring new customers, which makes it an obvious revenue growth strategy. Revenue diversification is just not affordable for every organization. Optimal taxation theory uses a general equilibrium approach to focus on the trade-off between equity goals and the deadweight loss of taxation. Theory provides conflicting predictions about the impact of greater diversification of activities on the performance of financial intermediaries. Financial stringency has been an increasing concern in the higher education sector, especially in the aftermath of the financial crisis. . Study Resources. More specifically, revenue diversification takes the form of interest and non-interest income. Revenue diversification and bank performance the current issue and full text archive of this journal is available on emerald insight at: exploring the influence . Successful diversification simultaneously reduces "concentration risk" and offers numerous other benefits to revenue, profitability and business resilience. MPT demonstrated that a diversified portfolio was less volatile . What diversification means Diversification is the act of investing in a variety of different industries, areas, and financial instruments, to.

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