TY - JOUR AU - Brown,Jeffrey AU - Dimmock,Stephen G. AU - Kang,Jun-Koo AU - Weisbenner,Scott TI - Why I Lost My Secretary: The Effect of Endowment Shocks on University Operations JF - National Bureau of Economic Research Working Paper Series VL - No. 15861 PY - 2010 Y2 - April 2010 UR - http://www.nber.org/papers/w15861 L1 - http://www.nber.org/papers/w15861.pdf N1 - Author contact info: Jeffrey Brown Department of Finance University of Illinois at Urbana-Champaign 515 East Gregory Drive Champaign, IL 61820 Tel: 217/333-3322 E-Mail: brownjr@illinois.edu Stephen G. Dimmock Division of Finance and Banking Nanyang Technological University Singapore, 639798 Tel: 65 6790-6119 E-Mail: dimmock@ntu.edu.sg Jun-Koo Kang Nanyang Technological University Singapore E-Mail: JKKANG@ntu.edu.sg Scott Weisbenner University of Illinois at Urbana-Champaign Department of Finance 340 Wohlers Hall, MC-706 1206 South Sixth Street Champaign, IL 61820 Tel: 217/333-0872 Fax: 217/244-9867 E-Mail: weisbenn@illinois.edu AB - Over the past two decades, endowments have become an increasingly important component of the typical university's resource base. We examine how U.S. doctoral institutions' endowment payout policies and spending decisions are affected by financial market shocks to endowments. While most endowments have formal payout policies intended to smooth payouts over time, we find that universities are more likely to deviate from these policies following negative (but not positive) shocks. These negative shocks have important economic effects on university activities. Specifically, we find that universities with larger negative endowment shocks are relatively more likely to: (1) reduce support staff (e.g., secretaries) and maintenance, but not administrators; (2) among less selective institutions, reduce expenditures on tenure-system faculty while increasing the average salary of adjuncts/lecturers; (3) make larger cuts to tenure-system faculty and secretarial support when their endowment portfolio is less liquid (i.e. higher allocations to alternative assets such as hedge funds); and (4) among more selective universities, reduce financial aid for students the following Fall and enroll fewer freshmen. We also find that universities increase hiring when there are negative endowment shocks to their peers. Thus, financial shocks have real effects on university operations, but with cross-sectional variation in how universities respond. ER -