Pressured by internal and external institutional stakeholders, institutions of higher education increasingly are challenged to demonstrate efficiency and productivity. One approach to illustrate productivity and efficiency is to examine how resources are allocated within the institution and the extent to which allocated resources meet institutional goals such as high first-year retention and 6-year graduation rates. Focusing on private Baccalaureate Liberal and General colleges and universities, the purpose of this study was to examine the relationship between institutional expenditures related to instruction, academic support, student services, institutional support, and institutional grants (i.e. student financial aid) and retention and graduation rates. Framed by Berger's (2001--2002) view that organizational behavior can impact student departure, this inquiry had three goals: (a) to understand the relationship between institutional expenditures and retention and graduation rates, (b) to understand the relationship of institutional selectivity, institutional expenditures and retention and graduation rates and (c) to investigate if these relationships have changed in the past ten years (1992--2002). The results confirmed Berger's theory: institutional expenditures accurately predicted retention and graduation rates. In examining specific institutional expenditures, the results indicated that expenditures dedicated to instruction, academic support and institutional grants positively contributed to retention and graduation rates whereas expenditures dedicated to student services and institutional support negatively contributed to retention and graduation rates. There was a positive relationship between institutional selectivity and retention and graduation rates illustrating that highly selective institution have higher retention and graduation rates than less selective institutions. Institutional grants (i.e. student financial aid) positively contributed to retention and graduation rates at low selectivity institutions but there was no significant relationship between institutional grants and retention and graduation rates at highly selective institutions. Results of the longitudinal analysis demonstrated that the accuracy of institutional expenditures to predict retention and graduation rates had been consistent over a 10-year period. Recommendations are suggested, including using the results to develop resource allocation strategies that can enhance retention and graduation rates.
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