How university endowments respond to financial market shocks : evidence and implications
Brown, Jeffrey R.
Dimmock, Stephen G.
Weisbenner, Scott J.
Date of Issue2014
College of Business (Nanyang Business School)
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.
American economic review
© 2014 American Economic Association. This paper was published in American Economic Review and is made available as an electronic reprint (preprint) with permission of American Economic Association. The paper can be found at the following official DOI: [http://dx.doi.org/10.1257/aer.104.3.931]. One print or electronic copy may be made for personal use only. Systematic or multiple reproduction, distribution to multiple locations via electronic or other means, duplication of any material in this paper for a fee or for commercial purposes, or modification of the content of the paper is prohibited and is subject to penalties under law.