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Financial Reporting Incentives for Private Colleges and Universities
David Burgstahler, University of Washington
Kimberly M Sawers, Seattle Pacific University
ABSTRACT: This study provides empirical evidence on financial reporting incentives for private colleges and universities (PCUs). In the absence of explicit donor or legal restrictions, PCUs are permitted to classify appreciation on endowment assets with either restricted or unrestricted net assets. Because classification with restricted net assets imposes a cost on the PCU by constraining future actions, PCUs have incentives to classify appreciation as unrestricted. However, there are also potential incentives related to perceptions and actions of stakeholders for the PCU to classify appreciation as restricted. Four stakeholder groups (lending institutions, faculty/staff, student/parents, and donors) are analyzed to generate hypotheses about incentives to report appreciation as restricted. Results of tests in a sample of 334 private colleges and universities suggest that incentives are significant determinants of the net appreciation reporting choice for PCUs.
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