“The Role of Nonprofit Endowments”
Coauthor(s): R. Glenn Hubbard.
Editors: E. Glaeser
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We consider the role of the endowment in nonprofit organizations. Nonprofit managers often describe the endowment, or fund balance, as serving a precautionary savings function. We provide a description of endowment size, for nonprofit organizations in a wide range of industries in the United States, and find that a large number of organizations have endowments that exceed levels that would normally be considered to be appropriate from a consumption smoothing prospective. We suggest that this may be the source of governance difficulties within the organization, analogous to the classic problem in corporate finance described by Jensen (1986). We describe a number of potential approaches to mitigating these governance concerns, and provide some preliminary evidence of the role of government regulation in reducing governance problems.
Source: The Governance of Not-for-Profit Organizations
Fisman, Raymond, and R. Glenn Hubbard. "The Role of Nonprofit Endowments." In The Governance of Not-for-Profit Organizations. Ed. E. Glaeser. Chicago: Univ. of Chicago Press, 2003.