Philanthropic organizations and public service delivery

Philanthropic organizations refer to foundations, social associations, and private nonenterprise units, which operate independently with the goal of pursuing public benefit through charitable activities (Salamon & Anheier, Reference Salamon and Anheier1998). In China, these organizations are recognized and regulated under the 2016 Charity Law as charitable entities that pursue public benefit missions rather than private profit. Despite differences in fundraising authorization and organizational structure among these entities, they are all encompassed by the legislation (Han et al., Reference Han, Lee and Song2025; Sidel, Reference Sidel2025; Wang, Reference Wang2025).

Their central function is to deliver public services, meet societal needs, and promote public welfare (Osborne, Reference Osborne2006). In their collaboration with government, philanthropic organizations serve as policy implementers, deliver specialized services, and reach underserved populations (Salamon, Reference Salamon1995). Assessing their delivery performance requires attention to multiple dimensions, as service delivery extends beyond the range and scale of activities to include differences in how organizations engage and reach communities (Miller-Stevens et al., Reference Miller-Stevens, Benevento-Zahner, L’Esperance and Taylor2022; Sowa et al., Reference Sowa, Selden and Sandfort2004). This study operationalizes public service delivery along three dimensions: scope, reflecting the breadth of service delivery; scale, indicating the magnitude of resource commitment; and beneficiary reach, capturing the extent to which organizations serve their intended populations (Benjamin, Reference Benjamin2013).

In China, philanthropic organizations operate in an embedded mode (Hsu et al., Reference Hsu, Hsu and Hasmath2017). They integrate into government-led initiatives by delivering contracted services and engaging at the community level. Over the past two decades, organizations have shifted their focus from policy advocacy to direct service delivery (Yu et al., Reference Yu, Shen and Li2021; Zhang & Guo, Reference Zhang and Guo2021), which has led to the expansion of service delivery across diverse domains, from social welfare and elder care to education and environmental protection. This expansion has been reinforced by expanding government contracting arrangements and sector-wide professionalization (Dong & Lu, Reference Dong and Lu2021). The 2016 Charity Law sets specific performance thresholds that organizations must meet.

Recent research has advanced our understanding of these dynamics on several fronts. From the capacity perspective, cross-sectoral collaboration patterns vary by service category but consistently position nonprofits as service implementers (AbouAssi et al., Reference AbouAssi, Chen, Grossman and Johnston2024), while studies on managerial competence have examined how organizational capacities improve delivery outcomes (Hung et al., Reference Hung, Gazley and Guo2025; Lee & Hung, Reference Lee and Hung2022). From the resource perspective, studies on resource dependency have moved beyond basic diversification toward strategic portfolio management and intersectoral partnerships (Hung & Hager, Reference Hung and Hager2019), and other studies examine how resource endowments shape NGOs’ (nongovernmental organizations’) strategic positioning (Jackwerth-Rice et al., Reference Jackwerth-Rice, Koehrsen and Mattes2023). These contributions notwithstanding, capacity and resources have predominantly been examined in isolation, with limited attention to how they interact to shape public service delivery.

This fragmentation is particularly evident at the micro-organizational level, where existing studies have addressed resource diversification and managerial competence in government contracting (Frumkin & Keating, Reference Frumkin and Keating2011; Jing & Chen, Reference Jing and Chen2012), but lack frameworks that integrate organizational capacity with resource conditions. Why organizations operating under comparable institutional contexts achieve different levels of service delivery remains unclear. This theoretical gap leads to our research question: How do professional capacity and organizational resources jointly influence public service delivery through interactive mechanisms?

Organizational professional capacity and public service delivery

Professional capacity encompasses specific knowledge, skills, and experience that enable organizations to complete tasks effectively (Winter, Reference Winter2003). It is rooted in resource-based theory and organizational capacity theory and highlights how internal competencies generate competitive advantage. In philanthropic organizations, professional capacity denotes the essential organizational attribute for delivering high-quality services in complex settings like disaster relief and community development. It consists of technical expertise, managerial competence, strategic planning, and stakeholder engagement (Despard, Reference Despard2017).

Professional capacity enhances public service delivery through several pathways. Technical expertise establishes cognitive legitimacy, making organizations reliable service providers (AbouAssi & Bies, Reference AbouAssi and Bies2018). It strengthens their competitive position by identifying service needs more effectively, which enables a more strategic approach to service delivery that aligns with clients’ requirements (Suárez, Reference Suárez2011). It also fosters cross-sector communication by establishing shared knowledge bases and collaboration platforms through streamlined processes.

Contrasting with Western contexts that emphasize advocacy and pluralistic representation, China’s service delivery system prioritizes technically proficient and depoliticized engagement. Organizations seeking established delivery channels must demonstrate expertise, particularly when competing for government contracts (Jing & Gong, Reference Jing and Gong2012; Spires et al., Reference Spires, Tao and Chan2014). This environment has fostered what researchers characterize as “professionalization for legitimacy” strategies, whereby NGOs invest substantially in professional capacity and service quality to establish credibility under state supervision (Zhan & Tang, Reference Zhan and Tang2016). Based on this, we propose H1:

H1: Philanthropic organizations’ professional capacity has a significant positive effect on their public service delivery.

Moderating effect of financial scale

Financial scale encompasses an organization’s financial assets. It demonstrates its stability, steady growth, and capacity to handle economic challenges (Bowman et al., Reference Bowman, Tuckman and Young2012). The larger the assets, the safer the operations are. It also means greater capacity to take risks and stronger leverage to collaborate with others (AbouAssi, Reference AbouAssi2013).

In philanthropic organizations, financial scale dictates strategic decisions like expanding programs and allocating resources during downturns. Philanthropic organizations with substantial resources maintain professional staffing, uphold high standards, and create buffers against revenue volatility (Calabrese, Reference Calabrese2012). However, those with limited resources encounter operational instability and constrain their capacity to engage effectively in service delivery (Beck et al., Reference Beck, Harris and Neely2025; Wiepking & de Wit, Reference Wiepking and de Wit2024).

These dynamics are particularly salient in China, where financial scale enables organizations to navigate complex regulatory environments and political shifts. Philanthropic organizations with large assets have greater discretion to navigate state–society relations, invest in staff training, and sustain public engagement (Newland, Reference Newland2018). Meanwhile, financial scale can enhance professional capacity by hiring qualified staff and maintaining training programs, which can effectively translate expertise into public service delivery. Based on this, we propose H2:

H2: Financial scale significantly moderates the relationship between philanthropic organizations’ professional capacity and public service delivery.

Mediating effect of annual income

Annual income is different from financial scale because it represents flow resources, such as annual inflows from donations, service fees, and contracts. It reflects an organization’s capacity to mobilize resources in changing environments (Bowman et al., Reference Bowman, Tuckman and Young2012). Steady annual income can provide direct funding for program implementations, staff development, and sustainable operations.

For philanthropic organizations, annual income demonstrates external trust and market competitiveness in acquiring resources. Professional capacity enhances annual income acquisition by increasing fundraising efficiency, organizational credibility, and accountability (Ashley & Faulk, Reference Ashley and Faulk2010; Carroll & Stater, Reference Carroll and Stater2009). The higher the annual income, the greater the organizational autonomy and the expanded service delivery.

In China’s state-centered system, professional capacity is a prerequisite for securing government contracts and gaining public trust (Hasmath & Hsu, Reference Hasmath and Hsu2020; Jing, Reference Jing2018). Organizations with stronger professional capacity have preferential access to government procurement and attract more donors, leading to higher annual income (Faulk et al., Reference Faulk, McGinnis Johnson and Lecy2017; Spires et al., Reference Spires, Tao and Chan2014). This suggests that professional capacity increases funding, which in turn enables public service delivery (Zhan & Tang, Reference Zhan and Tang2016). Based on this, we propose H3:

H3: Annual income mediates the relationship between philanthropic organizations’ professional capacity and public service delivery.

Moderated mediation effect

The interaction between professional capacity and organizational resources is more than simple moderation or mediation. Financial scale may affect both the direct effect of professional capacity on public service delivery and the indirect effect through annual income.

The first path is that financial scale moderates the relationship between professional capacity and annual income. When organizations pursue higher annual income, financial scale underpins professional capacity. Well-capitalized organizations can apply sophisticated fundraising strategies (Kim, Reference Kim2015), manage revenue volatility more effectively (Chikoto-Schultz & Neely, Reference Chikoto-Schultz and Neely2016), and strengthen credibility by demonstrating stability to stakeholders (Burger & Owens, Reference Burger and Owens2010). These mechanisms amplify the impact of professional capacity on annual income acquisition (Calabrese, Reference Calabrese2012).

The second path is that financial scale moderates the relationship between annual income and public service delivery. Organizations with a larger financial scale can more easily convert extra annual income into service delivery, as they possess greater stability and infrastructure for rapid scaling (Mitchell & Calabrese, Reference Mitchell and Calabrese2019). Organizations with smaller financial scale exhibit weaker effects from annual income due to constraints on resource absorption and deployment (Garcia-Rodriguez & Romero-Merino, Reference Garcia-Rodriguez and Romero-Merino2020). Financially stable organizations can leverage incremental income more strategically and invest in long-term service improvements (Chen, Reference Chen2021).

Within China’s public service delivery system, this two-path moderation establishes foundations for moderated mediation effects. Financial scale may simultaneously moderate the direct effect of professional capacity on public service delivery and the indirect effect through annual income. Combined professional capacity and financial scale enable organizations to procure service contracts and carry out programs through higher annual income (Teets, Reference Teets2013), which demonstrates that stock resources can shape flow resources across multiple stages. Based on this, we propose H4:

H4: Financial scale moderates the indirect effect of professional capacity on public service delivery through annual income.

Figure 1 presents the theoretical framework of this study, illustrating the hypothesized relationships among professional capacity, financial scale, annual income, and public service delivery.

Fig. 1.

Proposed theoretical model.

Data and samples

We studied registered philanthropic organizations in Shanghai from 2010 to 2022. Shanghai was chosen for its economic development, diversity of philanthropic organizations, maturity of philanthropy, and data availability. Data were drawn from the Shanghai Civil Affairs Bureau, the Shanghai Social Organization Public Service Platform (SSOPSP), annual reports, financial statements, and project archives. The unbalanced panel data consists of 259 organizations with 1992 observations and an average of 7.69 years per organization. The sample covers all philanthropic organizations that publish at least one annual report with data on the number of charitable projects, project expenditure, or the number of beneficiaries, so it represents publicly reporting organizations in Shanghai during this period. Although this study concentrates on a single city, Shanghai’s well-established regulatory infrastructure and transparent reporting practices make it a valuable case for studying public service delivery in China’s philanthropic sector (see Appendix 1).

The unbalanced panel mitigates selection bias and enhances external validity through incorporating organizations with varied lifespans (Baltagi, Reference Baltagi2021; Wooldridge, Reference Wooldridge2010). However, this method requires cautious interpretation as the observational nature precludes definitive causal inference, and potential attrition bias remains if organizational exit correlates with study variables (Baltagi, Reference Baltagi2021). Our two-way fixed effects models partially address unobserved confounders, yielding strong correlational evidence.

Data were manually coded from primary documents, such as annual reports and official filings, following a standardized protocol with clear indicator definitions, formatting rules, and unit conversions. For each organization-year, we extracted the number of charitable projects, project expenditure, and the number of beneficiaries. Trained assistants double-coded a random 10% subsample and achieved over 95% inter-coder agreement, resolving discrepancies through consensus. We excluded observations with more than 20% of fields missing and filled minor gaps by cross-referencing adjacent years or auxiliary documents.

Variables

Modeling strategy

We used two-way fixed effects models to test hypotheses regarding professional capacity, financial scale, annual income, and public service delivery. Model specification tests indicated significant individual effects in the BP-LM test, supporting the use of random effects model over pooled OLS. The Hausman test further indicated a preference for fixed effects over random effects (see Appendix 4.1). We estimated four sequential models: the baseline model examines the direct effect of professional capacity on public service delivery (see Appendix 4.2); the moderation model introduces financial scale as a moderator through an interaction term between professional capacity and financial scale (see Appendix 4.3); the mediation model evaluates annual income as a mediator using Baron and Kenny’s (Reference Baron and Kenny1986) causal-step approach, supplemented by bootstrap analysis with 5000 resamples (see Appendixes 4.4 and 6.2); and the moderated mediation model incorporates both the moderation and mediation pathways (see Appendix 4.5). The two-way fixed effects models control for time-invariant organizational heterogeneity and temporal shocks. This specification improves internal validity by accounting for unobserved, time-invariant organizational characteristics that may jointly affect professional capacity and public service delivery.

Theoretical contribution

This study examines the relationship between professional capacity and public service delivery in philanthropic organizations, focusing on mechanisms through which organizational resources operate. The results confirm that professional capacity has a significant positive impact on public service delivery, moderated by financial scale and partially mediated by annual income. The main contribution is that we integrate capacity and resource perspectives to explain how professional capacity and organizational resources jointly influence public service delivery.

We move beyond earlier research that examines either professional capacity or organizational resources separately by highlighting their interactions (Hong, Reference Hong2019; Meier et al., Reference Meier, Favero and Zhu2015). Our findings show that professional capacity has a limited impact on public service delivery and requires adequate resource support to fully realize its potential. Annual income as a mediator converts professional capacity into higher public service delivery and demonstrates the bridging role of resources in capacity building. This integrated perspective deepens our understanding of the heterogeneity in public service delivery among philanthropic organizations. Moreover, observed effect sizes suggest meaningful differences in practice. For instance, a standard deviation increase in professional capacity corresponds to a 1.370-point rise in public service delivery on a 0–100 scale, which is equivalent to nearly 5% of the sample mean, reflecting tangible gains in the number of charitable projects, project expenditure, and the number of beneficiaries.

Furthermore, the study distinguishes between stock and flow resources based on their different operational mechanisms. Financial scale primarily moderates the direct effect of professional capacity on public service delivery, while annual income works as a mediator and translates professional capacity into public service delivery. Robustness tests reveal that this distinction varies across organizational types. Nonpublic fundraising foundations have stronger moderating effects, and public fundraising foundations exhibit more pronounced mediating effects. This finding refines the applicability of resource–capacity interactions in the nonprofit sector, revealing the complexity between different organizational resources and professional capacity.

While these findings emerge from China’s institutional context of embedded service delivery, the framework integrating capacity and resource perspectives handles fundamental questions about how professional capacity and organizational resource jointly influence public service delivery. The differences between stock resources (financial scale) and flow resources (annual income), along with mechanisms through which professional capacity enhances public service delivery, offer insights with potential applicability across different contexts. This integrated perspective is particularly relevant for settings where NGOs must navigate complex regulatory environments and keep service quality high, regardless of whether these systems are authoritarian, corporatist, or democratic.

The synergy between organizational resources and professional capacity

The interaction effect between professional capacity and financial scale (β = 0.411, p < 0.01) reveals a public service delivery dilemma when resources are limited. The impact of professional capacity is stronger with more organizational resources. When the financial scale is larger, professional capacity shows a stronger positive relationship with public service delivery, whereas this relationship weakens considerably under the smaller financial scale. This suggests that financial resources buffer against uncertainty and provide a stable foundation for professional capacity to drive service delivery (Van den Bekerom et al., Reference Van den Bekerom, Torenvlied and Akkerman2016). Organizations with sufficient resources can invest in projects and expand services, whereas organizations with few resources struggle to mobilize expertise effectively. This underscores the dual necessity of professional capacity and financial resources for public service delivery.

An important and unexpected finding is that financial scale did not significantly moderate the indirect effect of professional capacity through annual income (β = −0.054, p > 0.1). This suggests that while financial scale is crucial for enabling organizations to translate professional capacity directly into public service delivery, it may not play a main role in creating more annual income. Organizations with high professional capacity have already maximized their fundraising capacity regardless of financial scale. This nuance indicates that financial scale serves more as a buffer for translating professional capacity into public service delivery, rather than as a driver of annual income generation.

The mediating mechanism where professional capacity enhances public service delivery by increasing annual income (β = 2.026, p < 0.01) further supports our integrated framework. Professional capacity contributes not only directly but also indirectly by improving resource acquisition through fundraising, program design, and stakeholder engagement. This highlights the dual role of professional capacity as both a direct driver of public service delivery and an indirect facilitator through higher annual income.

We describe this mediation as partial because the direct effect of professional capacity on public service delivery remains statistically significant even after including the indirect path through annual income. This interpretation matches established definitions of partial mediation, where both direct and indirect effects are significant and point in the same direction (Hayes, Reference Hayes2017). While we acknowledge that conceptual boundaries of partial mediation remain debated in the methodological literature, our empirical approach follows widely accepted practices in social science mediation analysis.

Practical implications

Our findings have several important implications for practice and policy. For organizational leaders, professional capacity requires sufficient resource support to be effective. Leaders should balance capacity building and resource acquisition so that professional capacity is backed by adequate financial resources. For nonpublic fundraising foundations, which demonstrate stronger moderating effects (β = 1.716 vs. 0.307), it is crucial to expand financial scale to better leverage professional capacity. Our findings show that investing in an additional standard deviation of professional capacity can improve public service delivery by ~5% of the sector’s average, translating into tangible improvements in service scope, delivery scale, and beneficiary reach.

For policymakers, a two-pronged strategy is recommended, namely promoting professional capacity building and improving resource support systems. Differentiated support systems should be developed for organizations with high professional capacity but limited resources to maximize their potential for public service delivery. For public fundraising foundations, they show stronger mediating effects, so policy design should tailor measures according to how different types of organizations depend on resources.

For funders and the public, when assessing nonprofit organizations, it is vital to evaluate the alignment between professional capacity and financial resources, rather than focusing on each dimension in isolation. Resource investments should be directed toward organizations where capacity and resources interact well, thereby optimizing social resource allocation. It is also important to recognize that the effects of professional capacity vary across different indicators, showing the strongest effects on the number of charitable projects while being relatively weaker on project expenditure. This suggests that evaluation systems should adopt multidimensional measurement standards.

Limitations and future research

Our study has several limitations. First, the unbalanced panel data restricts the accuracy of causal inference. Second, organizational resources are operationalized through financial dimensions, overlooking human capital, social networks, and other resources. Third, the measurement of professional capacity primarily relies on staffing levels, without fully considering qualitative dimensions like training quality. Fourth, the study primarily draws on standardized, government-regulated administrative records. While these provide consistent, verifiable data across organizations and years, they may omit informal practices or underreport aspects of public service delivery. Fifth, public service delivery is mainly measured through organizational outputs, which may not fully capture ultimate social impacts. Finally, the research focuses only on philanthropic organizations in China and requires cross-cultural validations of the findings’ generalizability.

Future research could proceed in four directions: first, employ quasi-experimental designs to strengthen causality; second, adopt more comprehensive measures of capacity, resources, and public service delivery, such as community impact assessments; third, incorporate qualitative evidence or survey-based data to complement standardized administrative records and capture organizational processes; finally, validate the applicability of the resource–capacity interaction framework in different institutional contexts.