To Borrow or Not to Borrow? An Analysis of University Leverage Decisions
Harvey Rosen () and
Alexander J. W. Sappington
No 21951, NBER Working Papers from National Bureau of Economic Research, Inc
This paper investigates the decisions of universities to issue debt. We test whether the expected value and uncertainty of a university’s nonfinancial income (the income generated by sources other than its endowment) affect its leverage (the ratio of the value of an institution’s liabilities to the value of its assets). We find that leverage is negatively related to both the expected value and the uncertainty of nonfinancial income. On average, increasing the expected value of nonfinancial income by one standard deviation decreases a university’s debt by about $5.1 million, while increasing the uncertainty of nonfinancial income by one standard deviation decreases debt by about $2.7 million. This behavior is consistent with the pecking order theory of capital structure, which posits that managers deplete available internal funds before issuing debt. We also show that the leverage decisions of universities have become less sensitive to expected nonfinancial income but more sensitive to its uncertainty since the Great Recession.
JEL-codes: I22 (search for similar items in EconPapers)
Note: ED PE
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published as Harvey S. Rosen & Alexander J.W. Sappington, 2016. "To borrow or not to borrow? An analysis of university leverage decisions," Research in Economics, vol 70(1), pages 170-185.
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:21951
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().