Japanese Government and Industries have been claiming the improvement of university governance in the face of the “Knowledge Based Economy”. However, their claim is often based on an industrial logic of profit making that is difficult to apply to universities. A university maintains various social relationships and its goals are multifold. Moreover, it has been said that internal transaction costs of a university are higher than those of profit organizations. This paper analyzes Japanese private universities’ environmental adaptations focusing on the relationship between economies of scale and transaction costs. The author found that large universities had the greatest scale merit but the lowest adaptive efficiency and that small universities were more adaptive than them. These results suggest that the governance reform promoted by the government may not be relevant due to large internal transaction costs and that university mergers, also promoted by the government, may not generate as much scale merit as expected because of the decline of adaptive efficiency.