The Financial Structure and Behavior of Private Universities in Japan

Focusing on the 1970s

Abstract

　 This paper clarifies the fact that variations in the financial behavior of private universities, primarily in the 1970s, are related to their asset size. From the second half of the 1960s to the first half of the 1970s, private universities, regardless of their size, borrowed funds mainly from commercial banks and up to the mid-1970s, short-term borrowings increased rapidly due to an increase in recurring expenses caused by inflation. Furthermore, in the case of long-term borrowings, owing partly to the fact that loans from The Promotion and Mutual Aid Corporation for Private Schools of Japan (a foundation) underwent a quantitative expansion, the relative proportion of foundation loans increased. However, as small universities did not have sufficient financial resources, it was presumed that they were investing in tangible fixed assets at the same time as incurring current liabilities in the form of short-term borrowings and notes payable.

　 Nevertheless, from the start of the second half of the 1970s, differences in the financial structure dependent on size became striking. While at small and mediumsized universities, the proportion of foundation loans showed a further rise, large universities, in the context of a favorable turnaround in financial conditions, promoted repayment of foundation loans and diversification of their financing while carefully observing changes in the trend in interest rates, and the proportion taken up by loans from commercial banks showed an increase. This indicates that a new form of market-oriented financing emerged at some large universities, even though it was still immature, from the 1960s, an era when universities had problems with the acquisition of long-term funds and short-term cash flow, to the second half of the 1970s.