Maximizing Revenue in Higher Education

By F. King Alexander; Ronald G. Ehrenberg | Go to book overview

When the effect of endowment growth on the behavior of
university and college donors is explored, some evidence
of donor adverse reactions to endowment growth is found,
particularly among certain classes of donors
.


7
Is There a Dark Side to Endowment
Growth?

Sharon M. Oster

In the late 1990s, university and college endowments in the United States grew by record amounts. In 1998, for example, the five hundred colleges and universities listed by the Chronicle of Higher Education earned average returns of 18 percent; in 1999, the figure was down slightly at 11 percent but still substantial relative to historical norms (Chronicle of Higher Education, Aug. 24, 2000). The current high levels of endowments have generated considerable discussion on university finances, including debates on spending rates, tuition levels, faculty compensation, and the like. In this chapter, I consider another issue associated with the recent endowment growth: Has this extraordinary growth dampened donor interest in new giving? Is there a “dark side” to the endowment growth?

Why might we ever expect endowment growth to discourage new donations? In other contexts, increased revenue from other sources has been shown to discourage donations to nonprofit organizations in a phenomenon that has been termed “crowding out” (Kingma, 1989; Steinberg, 1993). With market returns on endowments of 15 percent to 20 percent and endowments themselves at several universities reaching into the billions, some donors might well believe that universities can manage without them. Endowment growth may change the donor mix at educational institutions as well, with some donor types reacting more negatively to a college or university’s growing affluence. At the same time, college presidents and other senior university officials may decide their time is better spent on activities other than

Research assistance for this article was provided by Jennifer Holleran. Charles Clotfelter, Ray Fair, Emily Oster, and Gordon Winston provided suggestions.

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