THE PARADOX OF GOVERNMENT-ENABLED AND GOVERNMENT-CONSTRAINED REVENUE DIVERSIFICATION: EVIDENCE FROM KENYAN PUBLIC UNIVERSITIES

Abstract

Revenue diversification has become a crucial strategy for public universities worldwide, particularly amid declining government funding. In Sub-Saharan Africa, universities face pressure to generate alternative income through tuition, research, services, asset utilization, and partnerships. This paper examines the paradox of government policy in Kenya, where the state both promotes and restricts revenue diversification. Using panel data from 22 Kenyan public universities from 2018 to 2023, financial stability was assessed using the Composite Financial Index (CFI) and related ratios. A fixed-effects regression with interaction terms was used to analyze how government policy functions as a moderator. Results showed that income from tuition, research, services, and assets significantly enhanced financial stability, while partnership income had a limited impact. However, government policy reduced the stabilizing effect of income from tuition, research, and assets, while somewhat supporting services and partnerships. These findings support the “enable–constrain paradox,” in which governments publicly advocate self-reliance but, in practice, constrain institutional independence. The study expands Resource Dependence Theory by illustrating “managed dependence,” refines Agency Theory by emphasizing accountability-driven inefficiencies, and adds nuance to Portfolio Theory by demonstrating that diversification benefits are distorted under restrictive policies. Policy recommendations include increasing tuition flexibility, reforming research funding mechanisms, simplifying asset approval processes, and promoting philanthropy. The paper concludes that unless governments adopt a stewardship approach to diversification rather than control, universities will remain financially vulnerable despite their efforts to diversify.