Agency Problems of Excess Endowment Holdings in Not-for-Profit Firms

Posted: 2 Mar 2006 Last revised: 23 Jan 2012

See all articles by John E. Core

John E. Core

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Wayne R. Guay

University of Pennsylvania - Accounting Department

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

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Abstract

We examine three alternative explanations for excess endowments in not-for-profit firms: (1) growth opportunities, (2) monitoring, or (3) agency problems. Inconsistent with growth opportunities, we find that most excess endowments are persistent over time, and that firms with persistent excess endowments do not exhibit higher growth in program expenses or investments. Inconsistent with better monitoring, program expenditures toward the charitable good are lower for firms with excess endowments, and CEO pay and total officer and director pay are greater for firms with excess endowments. Overall, we find that excess endowments are associated with greater agency problems.

Keywords: Corporate governance, Not-for-profit, Cash holdings, Endowment, Agency problems

JEL Classification: G31, G35, G38, J33, L31

Suggested Citation

Core, John E. and Guay, Wayne R. and Verdi, Rodrigo S., Agency Problems of Excess Endowment Holdings in Not-for-Profit Firms. Journal of Accounting & Economics (JAE), Vol. 41, No. 3, pp. 307-333, 2006, Available at SSRN: https://ssrn.com/abstract=887122

John E. Core (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Wayne R. Guay

University of Pennsylvania - Accounting Department ( email )

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Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
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