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

48 Pages Posted: 19 Jul 2004  

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)

Multiple version iconThere are 2 versions of this paper

Date Written: December 15, 2005

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, non-profit, executive compensation, cash holdings, endowment, agency problems

JEL Classification: D82, G34, G31, G35, G38, H20, 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 (December 15, 2005). Available at SSRN: https://ssrn.com/abstract=565241 or http://dx.doi.org/10.2139/ssrn.565241

John E. Core (Contact Author)

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

100 Main Street
E62-416
Cambridge, MA 02138
United States

Wayne R. Guay

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
1329 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6365
United States
215-898-7775 (Phone)
215-573-2054 (Fax)

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

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