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How University Endowments Respond to Financial Market Shocks: Evidence and Implications

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  • Jeffrey R. Brown
  • Stephen G. Dimmock
  • Jun-Koo Kang
  • Scott J. Weisbenner

Abstract

Endowment payouts have become an increasingly important component of universities' revenues in recent decades. We study how universities respond to financial shocks to endowments and thus shed light on a number of existing models of endowment behavior. Endowments actively reduce payouts relative to their stated payout policies following negative, but not positive, shocks. This asymmetric behavior is consistent with "endowment hoarding," especially among endowments whose current value is close to the benchmark value at the start of the university president's tenure. We also document the effect of negative endowment shocks on university operations, such as personnel cuts.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 104 (2014)
Issue (Month): 3 (March)
Pages: 931-62

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Handle: RePEc:aea:aecrev:v:104:y:2014:i:3:p:931-62

Note: DOI: 10.1257/aer.104.3.931
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. University endowment shocks and resource allocation
    by Economic Logician in Economic Logic on 2010-05-05 14:00:00
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Cited by:
  1. David Dranove & Craig Garthwaite & Christopher Ody, 2013. "How do Hospitals Respond to Negative Financial Shocks? The Impact of the 2008 Stock Market Crash," NBER Working Papers 18853, National Bureau of Economic Research, Inc.
  2. Caroline M. Hoxby, 2012. "Endowment Management Based on a Positive Model of the University," NBER Working Papers 18626, National Bureau of Economic Research, Inc.
  3. Keith C. Brown & Cristian Ioan Tiu, 2013. "The Interaction of Spending Policies, Asset Allocation Strategies, and Investment Performance at University Endowment Funds," NBER Chapters, in: How the Financial Crisis and Great Recession Affected Higher Education National Bureau of Economic Research, Inc.
  4. Stephen Satchell & Susan Thorp & Oliver Williams, 2012. "Estimating Consumption Plans for Recursive Utility by Maximum Entropy Methods," Research Paper Series 300, Quantitative Finance Research Centre, University of Technology, Sydney.
  5. Keith Brown & Cristian Tiu, 2013. "The Interaction of Spending Policies, Asset Allocation Strategies, and Investment Performance at University Endowment Funds," NBER Working Papers 19517, National Bureau of Economic Research, Inc.
  6. Jeffrey R. Brown & Stephen G. Dimmock & Scott Weisbenner, 2012. "The Supply of and Demand for Charitable Donations to Higher Education," NBER Working Papers 18389, National Bureau of Economic Research, Inc.

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  1. Economic Logic blog

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