Abstract (from the website):
Nonprofits continue to be faced with the pressure to succeed under financial restrictions. While donors assert that financial restrictions help nonprofit service delivery, nonprofit professionals claim that financial restrictions hinder service delivery. Applying both principal-agent and resource dependence theories, this study tests competing hypotheses to understand whether donor-imposed financial restrictions help or hinder nonprofit service delivery. Using a sample of national arts and culture nonprofits in the United States from 2011 to 2018, our results indicate a negative relationship between financial restrictions and program outputs. We find that donor-imposed financial restrictions hinder nonprofit service delivery. We also find that the relationship turns more negative when financial restrictions are mostly derived from permanently restricted donations. The findings challenge the donors’ view that imposing restrictions on donations ensures that nonprofits will further their missions. This study extends prior research by focusing on program outputs rather than financial performance, while also having theoretical implications for scholars and practical implications for both nonprofit and public managers, and donors.