The emergence of risk‐based regulation in higher education

Purpose Business schools are increasingly positioning themselves as entrepreneurial risk‐takers. In doing so, they are front‐runners of a marketization trend affecting the entire higher education sector. In response, governments have begun to subject higher education sectors to systems of risk‐based regulation. The purpose of this paper is to study the likely impact of regulatory change on business school behaviour. Design/methodology/approach The article focuses on the financial dimension of institutional performance and draws on the corporate risk management literature to derive general design principles for managing risk‐taking in business schools. These are matched with a review of the regulation literature to evaluate regulatory effectiveness. Findings Business schools are facing a double‐hurdle test when managing their risk position. They need to protect their financial solvency with the maintenance of properly functioning risk management systems. At the same time, they will increasingly be subjected to regulatory scrutiny with regulatory shortcomings likely to be mapped into binding but sub‐optimal behavioural constraints. The article offers initial reflections as to how business schools can cope with this double‐hurdle. Originality/value Risk management in higher education, here with a specific reference to business schools, has so far been under‐theorized from a financial perspective and, as a consequence, the debate on risk‐based regulation lacks a proper foundation. The article addresses this shortcoming.