How University Endowments Respond to Financial Market Shocks: Evidence and Implications
AbstractEndowment payouts have become an increasingly important component of universities’ revenues in recent decades. We test two leading theories of endowment payouts: (1) universities smooth endowment payouts, or (2) universities use endowments as self-insurance against financial shocks. In contrast to both theories, 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 with values 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, including personnel cuts.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15861.
Date of creation: Apr 2010
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Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
- L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-LAB-2010-04-11 (Labour Economics)
- NEP-SOG-2010-04-11 (Sociology of Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- University endowment shocks and resource allocation
by Economic Logician in Economic Logic on 2010-05-05 14:00:00
- 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.
- Jeffrey R. Brown & Stephen G. Dimmock & Scott Weisbenner, 2012.
"The Supply of and Demand for Charitable Donations to Higher Education,"
in: How the Financial Crisis and Great Recession Affected Higher Education
National Bureau of Economic Research, Inc.
- 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.
- Caroline M. Hoxby, 2013. "Endowment Management Based on a Positive Model of the University," NBER Chapters, in: How the Financial Crisis and Great Recession Affected Higher Education National Bureau of Economic Research, Inc.
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