Reporting a significant part of the findings from the research project funded by the Ministry of Science and Technology in Taiwan, this study examines the role of the state and university-government relationship in Taiwan through three dimensions of agency theory: socio-cultural underpinnings, economic and funding incentives, and political oversight mechanisms. The study adopts a case study research method with in-depth semi-structured interviews. There were 30 interviewees who are top and mid-level executives and academics at two premier universities and senior policymakers who have been associated with higher education. The interviews explored stakeholders’ perceptions in terms of how Taiwan’s premier universities work with the government and how the government maintains its support and influence through the system of checks and balances. The study has empirically identified the invigorating role of the state as a policy driver and a close relationship between universities, the state, and society in Taiwan. It finally poses the implications of political culture on how the governance of higher education in Taiwan is influenced by the state and its changing socio-cultural environment.