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American Economic Review: Vol. 104 No. 3 (March 2014)

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

Article Citation

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

DOI: 10.1257/aer.104.3.931

Abstract

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.

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Authors

Brown, Jeffrey R. (U IL)
Dimmock, Stephen G. (Nanyang Technological U)
Kang, Jun-Koo (Nanyang Technological U)
Weisbenner, Scott J. (U IL)

JEL Classifications

G35: Payout Policy
I22: Educational Finance; Financial Aid
I23: Higher Education; Research Institutions


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