NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

To Borrow or Not to Borrow? An Analysis of University Leverage Decisions

Harvey S. Rosen, Alexander J. W. Sappington

NBER Working Paper No. 21951
Issued in January 2016
NBER Program(s):ED, PE

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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21951

Published: 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.

Users who downloaded this paper also downloaded* these:
Coile, Milligan, and Wise w21940 Health Capacity to Work at Older Ages: Evidence from the U.S.
Rosen and Sappington w21271 What Do University Endowment Managers Worry About? An Analysis of Alternative Asset Investments and Background Income
Daniel and Hirshleifer w21945 Overconfident Investors, Predictable Returns, and Excessive Trading
Dovis, Golosov, and Shourideh w21948 Political Economy of Sovereign Debt: A Theory of Cycles of Populism and Austerity
Barberis, Greenwood, Jin, and Shleifer w21944 Extrapolation and Bubbles
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us