Prolegomena to a Theory of Institutional Finance in Higher Education

Abstract

The literature (both scholarly and practitioners’) on the management of the finances of higher education institutions (HEIs) is limited, and what work exists is clearly inadequate because either it is based on personal opinions warranted by alleged professional experience or else it unreflexively adopts textbook methods such as ratio analysis without any serious thought on why or how these methods should be used. Readers of such work are faced with the problem of assessing these positions and choosing between them without any standards for evaluation. The goal of this thesis is to develop a framework for thinking about HEI finance based on prior principles.

My approach to this problem begins with some reflections made by Luigi Zingales in a 2000 paper in the Journal of Finance. Zingales argues that every approach to corporate finance presumes a particular theory of the firm, and that the currently dominant version of corporate finance presumes a type of firm that is no longer as common or important as it used to be. He concludes that a new corporate finance is needed. I reach a different conclusion from his basic observation since I am comfortable with the idea that different types of firm can exist at a given time, and that a specific corporate finance can be appropriate to each. I therefore argue that one must begin with a conception of what kind of thing a given institution is (that is, an ontology of a given institutional type) and build an institution-specific corporate finance on this foundation.

After reviewing some common approaches to HEI ontology, I conclude that none is satisfactory for my purposes. Based on common arguments about the governance structure of contemporary HEIs based on continuity over time, I suggest that certain features of the structure of the first medieval universities has been maintained up to the present, though admittedly it has been both streamlined and augmented in important ways over the centuries. About a third of this thesis is therefore devoted to developing an HEI ontology based on a selective review of the history of HEIs, with a focus on the Germanic and Anglo-American regions.

The original contribution of this thesis is fourfold. First, I formulate an original conception of a problem, namely that there is a need for a principled foundation for any consideration of HEI finance. Second, I develop an argument, based on Zingales’ paper, that any corporate finance needs to be based on an ontology of a particular institutional type. Third – and it is the core of the thesis – I develop an ontology for HEIs, based on historical considerations, that serves as an appropriate foundation for considering HEI finance. Finally, I present some preliminary thoughts about what an HEI finance would look like when developed on these foundations.

Date of Award	25 Jun 2025
Original language	English
Awarding Institution	University of Bath
Supervisor	Dimo Dimov (Supervisor) & Stephen Egan (Supervisor)