The Effect of Tuition Fee Constraints on Financial Management: Evidence from Korean Private Universities

Abstract

This study examined the effect of tuition fee control policy on universities’ financial management. Using data from 93 private universities in Korea from 2006 to 2015, we investigated the effect of tuition fees and government subsidies on labor cost, operating expenses, research expenses, and so on. Based on principal and agency theory, we used the analysis of average percentage change in expenditure and panel data analysis with the help of a Least Squares Dummy Variable (LSDV) model and polynomial regression. The results show that the increase rate of tuition fees decreased after 2011, with government subsidies increasing. The LSDV analysis indicates that universities increase labor costs, operating expenses, and student support fees, while there are no differences in research expenses, laboratory fees, and expenditures from investments and other assets. Polynomial regression reveals that, based on resources, universities behave differently in their spending. With these results, this study suggests a method to lessen information asymmetry and goal conflict, such as a performance-based research system and an incentive-based budget system in universities.