The Consequences of Revenue Diversification on the Financial and Research Outcomes at U.S. Public Research Universities
Abstract
The decline in state funding for public research universities has brought about a global crisis. The current conditions, coupled with increased costs and the pressure to keep those costs low, is unlikely to normalize anytime soon. The volatility in state funding has prompted public institutions of higher education to seek alternative sources of funding. However, the consequences of diversifying revenue (i.e., finding alternative sources of funding) on financial stability and knowledge productivity are unclear, and thus demand further study. This research examines the consequences of revenue diversification on institutional financial and research outcomes at public research universities in the US, using hierarchical linear modeling, psychometric approaches, and mediation analysis. Panel data from 2006 to 2015 obtained from 81 public research universities via the Integrated Postsecondary Education Data System, Academic Analytics dataset, and national academies wesbsites (i.e., science, engineering, medicine, and education) were used to address three broad questions: (a) What are the consequences of revenue diversification on institutional financial stability? (b) What are the consequences of revenue diversification on institutional research productivity? and (c) How does institutional financial stability mediate the effects of revenue diversification on institutional research productivity?
The analysis found that diversifying revenue did not have a positive effect on an institution’s financial stability; on average, a one dollar increase in revenue diversification activities led to a 2.68 unit decrease in institutional financial stability. However, the results indicate that the change in financial stability over time was not statistically significant, and such changes significantly differed across institutions. Institutions dependent on income from net tuition were more financially stable; they became less financially stable when they depended on income from the government. The findings also indicate that several measures of research productivity could be reduced to productivity inputs and outcomes. The high reliability of the two factors for measuring research productivity implies that the factors were accurate, reproducible, and consistent across time points. The results also indicate that revenue diversification had a positive effect on research productivity. Further analysis found that while institutions dependent on income from tuition increased their research productivity, dependence on income from research and auxiliary services significantly reduced research productivity. However, depending on income from the government and private endowments did not affect research productivity. Finally, the results of the mediation analysis show that institutional financial stability did not influence the relationship between diversifying revenue and research productivity. The findings of this study provide a deeper insight into the consequences associated with diversifying revenue, how institutional functions relate, and the need to seek ways of keeping the funding gap from widening, all topics of importance to policymakers. For institutional leaders, this study suggests the need to develop sustainable long-term financial strategies and advocate for financial predictability.
Subject
higher educationrevenue diversification
state funding
public research universities
financial stability
research productivity,
Citation
Wekullo, Caroline Sabina (2019). The Consequences of Revenue Diversification on the Financial and Research Outcomes at U.S. Public Research Universities. Doctoral dissertation, Texas A & M University. Available electronically from https : / /hdl .handle .net /1969 .1 /184426.