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Did mergers help Japanese mega-banks avoid failure? Analysis of the distance to default of banks

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  • Harada, Kimie
  • Ito, Takatoshi

Abstract

This paper applied the distance to default (DD) measure to five mergers among large Japanese banks during the crisis period. The DD helps us analyze whether mergers that took place in the late 1990s and 2000s made the merged banks financially more robust, as intended. Our findings include: (1) A merged bank fundamentally inherits financial soundness of premerged banks, without incremental value from the merger; and (2) A negative DD was observed following the merger. The findings of this case study are consistent with the view that large Japanese banks' mergers either failed to implement intended scale economies or were motivated by a belief in the too-big-to-fail policy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 25 (2011)
Issue (Month): 1 (March)
Pages: 1-22

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Handle: RePEc:eee:jjieco:v:25:y:2011:i:1:p:1-22

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Distance to default Bank merger Financial holding company;

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References

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Cited by:
  1. Chen, Sichong, 2013. "How do leverage ratios affect bank share performance during financial crises: The Japanese experience of the late 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 1-18.
  2. Giannetti, Mariassunta & Simonov, Andrei, 2009. "On the Real Effects of Bank Bailouts: Micro-Evidence from Japan," CEPR Discussion Papers 7441, C.E.P.R. Discussion Papers.
  3. Saldías, Martín, 2013. "Systemic risk analysis using forward-looking Distance-to-Default series," Journal of Financial Stability, Elsevier, vol. 9(4), pages 498-517.
  4. Harada, Kimie & Ito, Takatoshi & Takahashi, Shuhei, 2013. "Is the Distance to Default a good measure in predicting bank failures? A case study of Japanese major banks," Japan and the World Economy, Elsevier, vol. 27(C), pages 70-82.

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