Association for Public Policy Analysis & Management

A great amount of attention has been devoted to the topic of college affordability as it relates to public postsecondary institutions. Relatively fewer studies, however, have examined the relationship between public policy and private postsecondary institutions (Delaney & Kearney, 2015; Jaquette & Hillman, 2015; Cellini, Darolia, & Turner, 2016). This study evaluates information disclosure strategies as a tool for reducing both irresponsible financial practices of private postsecondary institutions as well as protecting consumers from making a risky investment decision due to asymmetric information. Particularly, this study exploits the Department of Education’s Financial Responsibility Composite scores, a relatively aggressive form of information disclosure. Not only does an institution’s score convey information to potential consumers (e.g. students and parents) regarding an institution’s financial behaviors, an institution’s score also dictates the amount of oversight to which an institution is subjected. While the impact of information disclosure policies has been widely discussed both theoretically and empirically in the context of environmental policies, the empirical impact of these programs remain understudied in different policy settings (Bae, 2012; Delmas, Mario, & Shimshack, 2010). Given the recent expansion of regulation-through-information policies – as opposed to traditional command-and-control approaches – this study contributes to the growing body of literature assessing the effectiveness of information disclosure policies while also providing insight into the risk taking behaviors of postsecondary institutions. This relationship is analyzed using a panel data set of Title-IV eligible private non-profit and for-profit institutions. In order to address the potential systematic different between non-profit and for-profit postsecondary institutions, several novel empirical strategies are employed in order to estimate the average treatment effect: a doubly robust estimator, a panel Heckman selection model, as well as a synthetic control model. Preliminary results are consistent across estimators: financial oversight leads to increased tuition-levels at non-profit institutions and decreased tuition-levels at for-profit institutions. The implications of these findings for policy instrument design as well as directions for future research are discussed.