Endowment for a rainy day? An empirical analysis of endowment spending by operating public charities

Abstract There has been growing public attention to the accumulation and spending of endowments in recent years. Scholars have offered different theories on the objective of endowments that have different implications for endowment spending. Yet, there are limited empirical studies and they mostly focus on universities. Using the Form 990 data between 2009 and 2016, this study examines how endowments are actually spent for four types of operating charities, including museums, universities, hospitals, and K‐12 schools. The descriptive results show that there are considerable cross‐sectional differences in endowment characteristics across these types of organizations. The fixed effects analyses further demonstrate different types of organizations have different payout responses to changes in endowment returns, non‐endowment income, and contributions to endowment. However, the study does not find any empirical evidence that organizations use endowments as rainy day funds. This article extends the understanding on endowment spending behavior from universities to other types of operating charities that also hold endowments. The findings provide empirical evidence that may inform the existing debate on endowment spending and have practical implications for endowment management.