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Donor Governance and Financial Management in Prominent U.S. Art Museums

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  • David Yermack

Abstract

I study “donor governance,” which occurs when contributors to non-profit firms place restrictions on their gifts to limit the discretion of managers. In a study of U.S. 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 non-profits and significantly influence their activities, but they reduce management flexibility and may contribute to lower profit margins. Rising donor governance in U.S. 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, 2015. "Donor Governance and Financial Management in Prominent U.S. Art Museums," NBER Working Papers 21066, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21066
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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