Free to Spend? Institutional Autonomy and Expenditures on Executive Compensation, Faculty Salaries, and Research Activities

System governing boards fulfill roles as both regulators and protectors for their multiple constituent campuses. While centralized control provides many benefits to institutional members, such advantages are also be accompanied by limitations upon campuses to pursue expanded missions, fully compete, and spend according to individual rather than collective priorities. In this study, I leverage a natural experiment where one state “freed” six public universities by removing the oversight of a centralized board. Given a novel opportunity to assess how institutions respond to a new intra-state market characterized by deregulation and increased competition for students, faculty, and other scarce resources, I first focus on changes in three institutional expenditure areas closely tied to entrepreneurship, competition, and prestige-seeking: executive compensation, faculty salaries, and spending on research activities. After constructing a novel dataset with administrative records on compensation and public data on expenditures, I employ complementary difference-in-differences and synthetic control approaches which yield robust evidence suggesting that newly independent universities increased the salary of their president/chancellor by approximately 6.2% (or $19,000), increased the average full professor salary by 2.2% (nearly $2,000), and increased research expenditures by an average of 12% (or $2 million). These findings not only advance the nascent literature on how state governance structures influence institutional behaviors but also provide useful evidence for policymakers considering the intended (and potentially unintended) consequences of similar governance reorganizations.