Title

The Adoption and Use of the Hirschman–Herfindahl Index in Nonprofit Research: Does Revenue Diversification Measurement Matter?

Document Type

Article

Language

eng

Format of Original

23 p.

Publication Date

6-2016

Publisher

Springer

Source Publication

VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations

Source ISSN

0957-8765

Abstract

Since its introduction by Tuckman and Chang, the Hirschman–Herfindahl Index (HHI) has been widely adopted into the nonprofit literature as a precise measure of revenue concentration. This widespread adoption has been characterized by diverse composition, with the HHI’s calculation being largely determined by the nature of the available data and the degree to which it contained disaggregated measures of revenue. Using the NCCS 990 Digitized Data, we perform an acid test on whether different HHI measures yield significantly different results. Four measures of revenue concentration—an aggregated measure based on three revenue streams, an aggregated measure separating government grants from other contributions, a more nuanced measure based on seven revenue streams, and a fully disaggregated measure based on thirteen revenue streams—are used to predict two dominant nonprofit financial health dimensions: financial volatility and financial capacity. Overall, our results show that aggregation in HHI measurement matters; aggregation often downplays relationships by influencing the significance levels and magnitudes of estimates in a non-trivial way.

Comments

VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, Vol. 27, No. 3 (June 2016): 1425-1447. DOI.