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Effects of tuition discounting on university’s financial performance

Abstract

We study how tuition discounting affects the financial decisions of universities, their student recruitment, and reputation. Using a large panel data of U.S. private and public four-year institutions, we find that tuition discounting helps institutions enhance their short-term operating surplus, increase admission yield, and reduce drop-out rate. However, it does not appear to improve the graduation rate or the quality of the incoming students. Institutions relying more on tuition discounting have more financial leverage, less equity, and experience lower liquidity and asset turnover—indicating greater financial risk. These results are stronger for private universities. Finally, out-of-sample tests show that tuition discounting may not help enhance the reputation of private universities.

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Acknowledgements

We are thankful to the Editor of this journal Cheng-Few Lee and an anonymous referee for insightful comments and suggestions. We gratefully recognize the guidance and assistance of Craig Lockwood and Tuition Management Systems. Special thanks to Abdul Gaylani and, for competent research assistance, to David Buccheri.

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Correspondence to Abu Jalal.

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Jalal, A., Khaksari, S. Effects of tuition discounting on university’s financial performance. Rev Quant Finan Acc 52, 439–466 (2019). https://doi.org/10.1007/s11156-018-0715-8

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  • DOI: https://doi.org/10.1007/s11156-018-0715-8

Keywords

  • Tuition discounting
  • University reputation
  • Financial performance
  • Higher education financial management

JEL Classification

  • I22
  • I23