This study examines the revenue structures of nonprofit organizations in the arts subsector to identify theoretically ideal revenue portfolios by examining the risk, return, and covariance of revenue streams. This article examines four major sources of revenue for arts organizations and builds on Kingma’s work on nonprofit revenue portfolios by carrying out the theoretical modeling suggested in his seminal work. Beyond identifying the efficient frontier, this approach can also reveal the composition of theoretically efficient portfolios found along the frontier. These portfolios are optimal in that they maximize revenue growth and minimize variability. This study has practical implications for the understanding of revenue diversification in the nonprofit sector, which has been identified as one mechanism by which nonprofit organizations can mitigate risk and increase survivability. This research also suggests that a commonly used measure of diversity, the Herfindahl-Hirshman index, may not always correspond with theoretical efficiency.

Additional Metadata
Keywords efficient frontier, modern portfolio theory, nonprofit finance, nonprofit revenue management
Persistent URL dx.doi.org/10.1177/0899764015603204
Journal Nonprofit and Voluntary Sector Quarterly
Citation
Grasse, N.J, Whaley, K.M. (Kayla M.), & Ihrke, D.M. (Douglas M.). (2016). Modern Portfolio Theory and Nonprofit Arts Organizations: Identifying the Efficient Frontier. Nonprofit and Voluntary Sector Quarterly, 45(4), 825–843. doi:10.1177/0899764015603204