Agency Problems of Excess Endowment Holdings in Not-for-Profit Firms
48 Pages Posted: 19 Jul 2004
Date Written: December 15, 2005
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
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