Distress with distress: financial health of higher education institutions affects demand

We investigate the causal relationship between university financial health and the interest of new students, using Yeshiva University as a case study. Because financial well-being and student demand-measured here by applications and first-year enrollment-are typically endogenous, we leverage a well-publicized adverse shock to identify the effect of financial distress on student interest. In 2008, it was revealed that Bernie Madoff had lost more than $100 million of Yeshiva University's endowment in a Ponzi scheme. We exploit this exogenous shock to its endowment. We show that Yeshiva University experienced substantial declines in applications which was not observed in similar institutions. Further, we document adverse downstream effects with reduced first-year enrollment and tuition revenues. This indicates that incoming students and their families pay attention to an institution's financial well-being in the school-selection decision.