This paper empirically tests the extent to which public universities in the United States are potentially mismanaged. The focus rests with university managerial employment decisions regarding the continuing substitution of less costly non-tenure track teaching faculty for tenured and tenure track faculty and the extent to which those decisions affect student graduation success. Panel data covering ten academic years, 2004-05 through 2013-14 are employed using ordinary least squares and stochastic frontier analysis specifications. The latter provides tests of the inefficiency effects of managerial employment decisions and academic year estimates of technical efficiency. In both cases, the results provide statistically strong evidence that tenured faculty lead to increased student graduation success while increases in non-tenured faculty have negative effects on student graduation rates. The stochastic results provide strong evidence of efficiency gains due to tenured faculty and increased inefficiency arising from non-tenure track faculty employment. While universities appear to have managed efficiency gains as a possible result of the Great Recession, those gains quickly evaporated in both 2012 and 2013. Separate estimates for research vs. lower level comprehensive universities, indicate that the former maintain greater operating efficiencies. Given that public universities are being subject to new funding models that tie funding to the production of student success rates, the continuing non-tenure track employment substitution suggests that universities are potentially mismanaged in generating funding support for faculty employment and student success.
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