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Donor governance and financial management in prominent US art museums

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  • David Yermack

    (NYU Stern School of Business, and National Bureau of Economic Research)

Abstract

I study “donor governance,” which occurs when contributors to nonprofit firms place restrictions on their gifts to limit the discretion of managers. In a study of US art museums, I find that this practice has grown significantly in recent years, and it represents the largest source of permanent capital in the industry. When donor restrictions are strong, museums shift their cost structures away from administration and toward program services, and they exhibit very high savings rates, retaining in their endowments 45 cents of each incremental dollar donated. Retention rates are near zero for cash generated from other activities. Restricted donations appear to stabilize nonprofits and significantly influence their activities, but they reduce management flexibility and may contribute to lower profit margins. Rising donor governance in US art museums may represent a reaction by contributors to the industry’s high rates of financial distress, weak boards of trustees, and large private benefits of control enjoyed by managers.

Suggested Citation

  • David Yermack, 2017. "Donor governance and financial management in prominent US art museums," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 41(3), pages 215-235, August.
    • Handle: RePEc:kap:jculte:v:41:y:2017:i:3:d:10.1007_s10824-017-9290-4
    DOI: 10.1007/s10824-017-9290-4
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    Cited by:

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    2. Zhuo Chen, 2022. "Promotion of the Effectiveness of Corporate Financial Management to Social Benefits," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 3-18.
    3. Sandeep Dahiya & David Yermack, 2018. "Investment Returns and Distribution Policies of Non-Profit Endowment Funds," NBER Working Papers 25323, National Bureau of Economic Research, Inc.
    4. Jawad, Muhammad & Naz, Munazza, 2023. "Environmental change through financial innovation: A systematic analysis of Program-Related donations," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    5. Chiara Carolina Donelli & Ruth Rentschler & Simone Fanelli & Boram Lee, 2023. "Philanthropy patterns in major Australian performing arts organizations," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(4), pages 1367-1396, December.
    6. Whitaker, Amy & Kräussl, Roman, 2023. "Art collectors as venture capitalists," CFS Working Paper Series 696, Center for Financial Studies (CFS).

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