A comparative study of investment strategies of colleges and universities and commercial corporations

Date of Completion

January 1988

Keywords

Business Administration, Accounting|Education, Finance|Economics, Finance

Degree

Ph.D.

Abstract

As traditional sources of financial support for higher education become increasingly scarce, college and university officials acknowledge a critical need to become more creative in the cultivation of alternate sources. Investment of assets represents one area where potential has not yet been fully explored. Commercial corporations, traditionally the most visible participants in the investment process, may represent a viable model for college and university officials seeking ways to build future equity in order to better fulfill the mission of higher education.^ The purpose of this study was to compare the investment strategies and objectives of colleges and universities with those of commercial corporations. A random sample of 200 private four-year academic institutions and 200 publicly held corporations, all located in the Northeast, were invited to respond to a questionnaire survey. Discriminant Function Analysis comprised the principal statistical application for the study.^ The following types of investments were significant predictors of group membership for colleges and universities and corporations: short-term liquid assets, foreign stock, and real estate.^ The following types of investments were significant predictors of institutional size as small, medium, or large colleges and universities: domestic stock, foreign stock, and venture capital and leveraged buyouts.^ The following types of investments were significant in predicting group membership of institutions having small, medium, or large endowments: domestic stock, foreign stock, foreign bonds, real estate, and venture capital and leveraged buyouts.^ Significant differences in decision-making strategies of colleges and universities and corporations were apparent. Through Chi-square analysis, significant differences were revealed in the following strategy areas: external versus internal portfolio management, and portfolio objectives. It was found that 80 percent of the academic institutions participating in the study employed external portfolio managers compared with 45 percent of corporate participants.^ Recommendations for further study include replicating the investigation in other geographic areas using additional variables, expanded research on rates of return and short-term liquid asset components together with research related to investment policy issues. ^

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