The main aim of the present study was to analyze the causes, outcomes, and strategies of performance-based budgeting in the Iranian higher education system. To this end, a qualitative approach based on the grounded theory was used. In order to collect reliable data, in-depth semi-structured interviews were conducted with two groups of experts who were selected by purposive sampling method based on the selection of desirable cases. After qualitative content analysis of the collected information via encoding, the detailed report preparation method and comparison with expert opinions were taken into account to validate the findings. At a significance level of 0.0001, the kappa measure of agreement was 0.786. The results showed that finding a suitable mechanism to ensure accountability and transparency in universities was the main focus of performance-based budgeting approach, and its implementation was affected by various factors at the macro level (government) and micro level (university). Positive outcomes of this budgeting model include improved accountability and transparency, project- oriented nature of the model, and improved efficiency and effectiveness. Besides, threat to the nature and independence of the university was possibly a negative consequence of this plan. To use the benefits simultaneously and avoid the negative consequences, various strategies were proposed, including the expansion of the authority, independence, and freedom of the university and the involvement of the university's senior managers.