A Choice Model of University Endowments Governance

Gao Xiang (), Gu Zhenhua () and Wang Zhan ()
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Gao Xiang: Research Center of Finance, Shanghai Business School, 2271 West Zhong Shan Road, Shanghai, 200235, PR China
Gu Zhenhua: College of Business and Economics, Shanghai Business School, 2271 West Zhong Shan Road, Shanghai, 200235, PR China
Wang Zhan: Research Center of Finance, Shanghai Business School, 2271 West Zhong Shan Road, Shanghai, 200235, PR China

The B.E. Journal of Theoretical Economics, 2021, vol. 21, issue 1, 269-285

Abstract: The board of committees governing university endowments often chooses between hiring professionals to run funds and trusting denoting entities with the funds. As usual, sophisticated fund managers can construct a well-diversified investment portfolio; however, their interests may not be aligned with the university. On the other hand, donors have the advantage of assuming full liabilities for losses, but they only have access to risky projects due to their limitations in terms of accessing the available investment universe. This paper develops a theoretical framework in an attempt to explain the distinct endowment management strategy adopted by universities, and particularly their choice of endowment operator identity. Our model can provide supports to the governance activities practiced by university endowments both in developed and developing countries. Furthermore, we show theoretically that current capital control regulations imposed by the developing country's government reduce donations and encourage universities to establish donor-advised endowment funds, in which donors surrender ownership of anything they put in the fund, but retain control over how their money is invested.

Keywords: donations; donors; fund managers; university endowments (search for similar items in EconPapers)
JEL-codes: I23 I28 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1515/bejte-2019-0136

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