This dissertation study examines the relationship between degree of financial autonomy and spending patterns of public higher education institutions on research-related activities versus instruction-related activities. As state appropriations have been decreasing and student enrollment has been increasing, higher education institutions have become more financially autonomous from states. Using 8-year panel of university- and state-level data, this study finds an association between financial autonomy and institutional spending patterns. The main finding(s) are the positive relationship between lesser reliance on state funding, more-diversified revenue sources and full authority over tuition-setting, and higher spending on research-related activities versus instruction-related activities, in particular for research universities. In turn, comprehensive institutions with the most flexible budgeting approach tend to spend more on instruction than research. Thus, the institutional type and the source of revenue (e.g., tuition and fees, state and local appropriations, grants, endowment interest, donations, etc.) matter.