Managerial Constraint or Tool for Expropriation: The Role of Board-Designated Endowments Among Not-for-Profit Organizations

• In Event: 2.01 Nonprofit Research Concurrent Session: NPO Performance

Abstract

We examine how a nonprofit organization’s (NPO’s) three sources of investable assets – operating reserves, board-designated endowments, and donor-restricted endowments – relate to operational performance and agency conflicts. Using Form 990 tax return data for years 2014 to 2018, we can distinguish the two endowment components and use balance sheet information to derive the operating reserves. We find that operating reserves and board-designated endowments are both associated with lower program spending and higher executive compensation ratios. These results suggest management is able to expropriate certain funds from the endowment and that boards fail in exercising appropriate oversight over these assets. Further, donor-restricted endowments are associated with lower program spending, but are not associated with executive compensation. This study should be of interest to policymakers concerned about growth in board-designated endowments specifically and to stakeholders evaluating NPO governance.

Authors

• Curtis Hall, Drexel University

• Andrew Finley, Claremont McKenna College