How University Endowments Respond to Financial Market Shocks: Evidence and Implications

Jeffrey Brown, Stephen Dimmock, Jun-Koo Kang and Scott Weisbenner

No 15861, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Endowment 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.

JEL-codes: G01 G11 I22 L3 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-lab and nep-sog
Note: AP CF ED PE
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Citations: View citations in EconPapers (11)

Published as Jeffrey R. Brown & Stephen G. Dimmock & Jun-Koo Kang & Scott J. Weisbenner, 2014. "How University Endowments Respond to Financial Market Shocks: Evidence and Implications," American Economic Review, American Economic Association, vol. 104(3), pages 931-62, March.

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Journal Article: How University Endowments Respond to Financial Market Shocks: Evidence and Implications (2014)
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