Financial Clout, Global Reputation, and Governance in UK Higher Education Institutions

Abstract

This paper investigates the link between financial clout and the global reputation of higher education institutions (HEIs) and consequently examines the extent to which the financial clout–global reputation nexus is moderated by HEIs’ governing board mechanisms. Using a sample of UK HEIs from 2015 to 2022, we find that financial clout, as measured by higher financial flexibility and greater operating efficiency, positively impacts HEIs’ global reputation. Specifically, we find that high financial flexibility, as captured by greater research grants and contracts, positively influences HEIs’ global reputation. In contrast, low financial flexibility, as captured by tuition fees dependency and reliance on funding body grants, negatively impacts HEIs’ reputation. Furthermore, we find that greater operating efficiency, as measured by net cash inflow from operating activities and net liquidity days, positively impacts HEIs’ global reputation. However, a higher net surplus margin negatively impacts HEIs’ global reputation, which may imply ineffective utilization of excess resources on core teaching/research facilities. Further, we find that the extent to which financial clout influences HEIs’ global reputation is moderated by the quality of board governance mechanisms. Our findings offer empirical support for neoinstitutional theory, which suggests that obtaining institutional legitimacy can help HEIs build competitive advantages, achieve a higher perception of quality, and ultimately achieve a higher global reputation. Our findings also offer important policy implications that emphasize the need for adopting governance practices that balance short-term financial health with long-term academic excellence.