Abstract
Many private universities in Korea are facing the worst financial situation at present not only due to the decreasing school-age population and their structural problems but also the impact of COVID-19. This paper aims to estimate the university’s economic shut-down point and financial efficiency scores with 115 private universities in 2020. COLS, CMAD, and SFA(exponential and truncated-normal distribution models) methods are utilized to compare the deterministic and stochastic results. As the results of empirical estimations, we have found that first, 24.3% of the private universities are at or near the shut-down point, and their average financial inefficiency was 18.9% and 7.5% measured by two SF models. Second, a striking result shows that a 1% increase in financial inefficiency lowers the university’s academic and financial performance by 2.5 times(%). This illustrates that it is important not to fall behind other universities in financial efficiency. Third, the sum of elasticities of the financial variables shows 0.57 in both SF models, decreasing returns to scale(DRS). Thus, this paper provides an implication of the importance of managing the financial efficiency for policy makers of government and universities.
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