Starting from scratch: Building of meaningful endowments by public charities

Abstract

AbstractMost nonprofits lack a true endowment and endowment wealth is concentrated in a relatively small number of organizations and subsectors. This study supports an operational definition of material endowment, equal to or greater than annual expenses, and investigates how common it is for a nonprofit to establish a meaningful endowment over time. Specifically, we address whether the sector's enthusiasm over the potential of endowment building is reflected in charitable organizations' experiences. Using financial data, we find that building a meaningful permanent endowment is a rare achievement among public charities over a period of two decades. Meaningful endowment creation, achieved by less than 2% of the sample, is more common for organizations with donor attachments, the need for subsidization of mission services, those with more fundraising costs, and those with more donative revenue portfolios.