Prudent Stewards or Pyramid Builders? Distribution Policies of Private Foundations
Tuck School of Business Working Paper No. 02-18
30 Pages Posted: 14 Sep 2002
Date Written: September 6, 2002
Abstract
The non-profit sector in the United States owns investment assets of about $1 trillion. Nearly half of these assets are owned by private foundations. The tax law requires that private foundations spend at least five percent of their assets each year on charitable purposes. Despite this minimum distribution requirement, private foundations doubled in size between 1994 and 1998. This paper examines the distributions made by a sample of private foundations between 1994 and 1998 using actual tax return data. It examines the amount and timeliness of these distributions. It also examines the level of administrative expenses per dollar of grants. It finds substantial variation among foundations with respect to each measure. It also finds that the tendency for a foundation to minimize the amounts currently transferred to charitable beneficiaries is positively correlated with size, fraction of operating expenses paid to outside experts, fraction of operating expenses paid to foundation officers, directors, and trustees, and is negatively associated with the fraction of current revenues from new contributions.
Keywords: Private Foundations, Non-profit Organizations, Payout, Minimum Distribution Requirement
JEL Classification: L31
Suggested Citation: Suggested Citation