Revenue Diversification on Financial Sustainability of Public Universities in Kenya

Abstract

Public universities play a critical role through academic empowerment of the citizens and actively participating in knowledge dissemination and research in society. However, despite being the centers of knowledge creation and development, one of the significant challenges facing public universities in Kenya is financial sustainability. This is evidenced by growing debt from financial institutions, unremitted statutory deductions, and shrinking government grants. Whereas proponents of sound financial management practices including revenue diversification hold the practices as possible solutions for financial sustainability of every organization, few studies have been done to ascertain this position in Kenyan public universities. Therefore, this paper sought to assess the effect of revenue diversification on financial sustainability of Kenyan public universities. The study used modern portfolio theory and financial sustainability model to discuss the variables. A descriptive research design was adopted while targeting 41 public universities for the study. Random sampling approach was applied to select 22 out of the 41 public universities. Using a secondary data collection template, secondary panel data was collected from the office of auditor general for the financial years 2018/2019 to 2022 / 2021.The study found revenue diversification had a negative significant impact on financial sustainability using gearing ratio and a positive significant effect on financial sustainability using sustainability ratio in Kenyan public universities. The study recommends that public universities should explore innovative alternative sources of revenue and close revenue-generating units whose marginal costs are higher than marginal revenues.