In 2004, all national universities were incorporated. At the same time, an efficiency coefficient and a management improvement coefficient were built into the funding formula for national university corporations. The purpose of this paper is to clarify the effects of both coefficients for the second mid-term plan period and third mid-term planning period, by focusing on university types.

The second section will review the pre-studies which relate to the efficiency coefficient and management improvement coefficient. The third section will explain the funding formula, with a focus especially on the two coefficients. The fourth section employs a simplified version of the funding formula to estimate the effects. The fifth section will clarify the effects based on the several assumptions which are used in the simplification of the formula. The sixth section discusses the results and draws the implications for employment of the funding formula for second or third mid-term plan periods. In the final section the limitations and constraints of this study are identified.

The main finding of this paper is that colleges of education will face the hardest financial situations, even in this second mid-term plan period. They have to cut their expenditures on consumables by more than 10%; in terms of the third mid-term plan period, they have to cut their consumables by nearly 50%.

So, for the second, or at least the third mid-term plan periods, there must be some adjustment to the coefficients, reflecting university type and financial structure.