Geographic and Product Diversification in Charitable Organizations

Abstract

The diversification of firms into new geographic and product markets has received a tremendous amount of attention in the field of management. Charities, on the other hand, have garnered attention among management scholars primarily as social influencers on multinational corporations. However, over the past half-century, charities have become significant diversified entities in and of themselves. At their core, both charitable and for-profit organizations are bundles of routines that struggle to deal with administrative issues related to institutional isomorphism, organizational slack, and resource dependency. However, from a contextual standpoint, one of the primary mechanisms by which the diversification of charities impacts efficiency is the transaction costs associated with seeking out and maintaining external resources from donors in addition to charities’ internal set of capabilities and routines. Using panel data involving 3,616 charities over a five-year period, the authors’ findings suggest that while the main relationship between geographic diversification and efficiency is U shaped in nature, the main relationship between product diversification and efficiency is inverted U shaped. From an interaction perspective, the authors’ results also suggest that while charities that maintain lower levels of product diversification follow a similar U-shaped curve as they increasingly diversify into new regions, this curve is inverted for charities that are engaged in unrelated types of product diversification. Therefore, the study suggests that the extent to which one type of diversification produces positive or negative efficiencies depends significantly on the level of the other type of diversification. Such findings have theoretical implications for both the charitable and for-profit sectors.