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ERIC Number: ED509173
Record Type: Non-Journal
Publication Date: 2010-Apr
Pages: N/A
Abstractor: As Provided
Reference Count: N/A
Why I Lost My Secretary: The Effect of Endowment Shocks on University Operations. NBER Working Paper No. 15861
Brown, Jeffrey; Dimmock, Stephen G.; Kang, Jun-Koo; Weisbenner, Scott
National Bureau of Economic Research
Over the past two decades, endowments have become an increasingly important component of the typical university's resource base. We examine how U.S. doctoral institutions' endowment payout policies and spending decisions are affected by financial market shocks to endowments. While most endowments have formal payout policies intended to smooth payouts over time, we find that universities are more likely to deviate from these policies following negative (but not positive) shocks. These negative shocks have important economic effects on university activities. Specifically, we find that universities with larger negative endowment shocks are relatively more likely to: (1) reduce support staff (e.g., secretaries) and maintenance, but not administrators; (2) among less selective institutions, reduce expenditures on tenure-system faculty while increasing the average salary of adjuncts/lecturers; (3) make larger cuts to tenure-system faculty and secretarial support when their endowment portfolio is less liquid (i.e. higher allocations to alternative assets such as hedge funds); and (4) among more selective universities, reduce financial aid for students the following Fall and enroll fewer freshmen. We also find that universities increase hiring when there are negative endowment shocks to their peers. Thus, financial shocks have real effects on university operations, but with cross-sectional variation in how universities respond.
National Bureau of Economic Research. 1050 Massachusetts Avenue, Cambridge, MA 02138-5398. Tel: 617-588-0343; Web site:
Publication Type: Reports - Evaluative
Education Level: Higher Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: National Bureau of Economic Research
Identifiers - Location: United States