The Impact of Revenue Diversification on the Financial and Educational Outcomes of Private Colleges and Universities During the Great Recession.

Abstract

The recent economic recession threatened all traditional revenue sources possessed by colleges and universities. Resultant tuition increases have led stakeholders to demand greater accountability and fostered increased focus upon strategic financing from administrators. This dissertation examines the economic and political trends that have placed the financial stability of many universities in peril. In this context, rationales for diversification are discussed including portfolio theory and resource dependence theory. Data were gathered on 814 private, non-research universities from multiple sources including the Delta Cost Project dataset and the Integrated Postsecondary Education Data System. Eight models were then developed using fixed effects regression analyses in order to assess the impact of revenue diversification and tuition dependence on the financial and educational outcomes of these institutions. While effects on educational outcomes were marginal, increasing revenue diversification in the years preceding the recession resulted in greater year-over-year total revenue per student but significantly reduced instructional expenditures per student. Implications are discussed both for public policy and institutional strategy.