Working Paper: NBER ID: w15861
Authors: Jeffrey Brown; Stephen G. Dimmock; Junkoo Kang; Scott Weisbenner
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.
Keywords: University Endowments; Financial Market Shocks; Payout Policies; Endowment Hoarding; University Operations
JEL Codes: G01; G11; I22; L3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Endowment size prioritization (I24) | Endowment hoarding hypothesis (D14) |
| Endowment shocks (G59) | Payout behaviors (G35) |
| Negative endowment shock (D14) | Payouts below stated policies (G35) |
| Positive endowment shock (D69) | Payouts (G35) |
| Payout reductions following negative shocks (G35) | University operations (M59) |