Abstract

http://ssrn.com/abstract=1444978
 


 



Scarcity Amidst Wealth: The Law, Finance, and Culture of Elite University Endowments in Financial Crisis


Peter Conti-Brown


Stanford Law School, Rock Center for Corporate Governance; Princeton University

August 6, 2009

Stanford Law Review, Vol. 63, No. 5, p. 699, 2011
Rock Center for Corporate Governance at Stanford University Working Paper No. 99

Abstract:     
Abstract: The financial crisis of 2008 left elite university endowments with 30% less value, leading these universities to respond with dramatic budgetary restructuring. While endowments had received probing national and Congressional attention in the months prior to the crisis, that attention has largely given way to the conventional wisdom that universities are no longer able to meet their budgetary needs because of these endowment losses. This wisdom has taken hold despite the fact that elite universities still sit atop multi-billion dollar endowments designed, at least in theory, to provide a cushion in times of financial distress.

This Article explores this apparent puzzle by looking at the legal and financial restrictions placed on endowment spending. The Article finds that, arguments to the contrary notwithstanding, the law does not meaningfully restrict elite universities in their spending largely because the law does not apply to unrestricted funds that compose almost half of elite universities’ endowments. A stronger explanation is financial: elite university investment in illiquid assets means that universities cannot cash out endowments to stabilize their budgets because of an inability to access those investments. I argue, though, that that explanation is still inadequate: illiquid investments likely account for a minority of a university’s endowment, and some elite universities have tapped these illiquid funds at “bottom-of-the-market” prices. The Article articulates a different theory of endowment value: universities use their endowments as a symbol of prestige and a point of competition between peer institutions. This cultural value of university endowments means that universities will strive to avoid endowment liquidation to the fullest extent possible, even in times of crisis.

Number of Pages in PDF File: 52

Keywords: university endowments, financial crisis, UMIFA, UPMIFA

Accepted Paper Series


Download This Paper

Date posted: August 8, 2009 ; Last revised: March 24, 2011

Suggested Citation

Conti-Brown, Peter, Scarcity Amidst Wealth: The Law, Finance, and Culture of Elite University Endowments in Financial Crisis (August 6, 2009). Stanford Law Review, Vol. 63, No. 5, p. 699, 2011; Rock Center for Corporate Governance at Stanford University Working Paper No. 99. Available at SSRN: http://ssrn.com/abstract=1444978

Contact Information

Peter Conti-Brown (Contact Author)
Stanford Law School, Rock Center for Corporate Governance ( email )
559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650 799 7232 (Phone)
Princeton University ( email )
22 Chambers Street
Princeton, NJ 08544
United States
Feedback to SSRN


Paper statistics
Abstract Views: 2,826
Downloads: 406
Download Rank: 39,857

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.313 seconds