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Consolidation of Cooperative Banks (Shinkin) in Japan:Motives and Consequences

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  • Kaoru Hosono
  • Koji Sakai
  • Kotaro Tsuru

Abstract

We investigate the motives and consequences of the consolidation of cooperative banks (Shinkin) in Japan during the period 1984-2002. Our major findings are as follows. First, less profitable and less cost efficient banks are more likely to be an acquirer and a target, though even less profitable and less cost efficient banks are more likely to be a target rather than an acquirer. In addition, a larger bank is more likely to be an acquirer and smaller one a target. These results are consistent with the regulators' motive for stabilizing the local banking system.¡¡Second, acquiring banks improved cost efficiency after the consolidation. M&As also raised the loan interest rate and improved profitability and X-efficiency particularly since the latter half of the 1990s. Nonetheless, the improvement of ROA after the merger was not sufficient to fill in the initial gap of the capital ratio between merging banks and peers, resulting in the deterioration of the capital ratio of consolidated banks relative to peers. M&As did not contribute to sufficiently stabilize the local banking system despite the regulators' motive. Third, the consolidation tended to improve the profitability of merging banks when the difference in profitability and healthiness between acquiring banks and target banks were large, which is consistent with the relative efficiency hypothesis (e.g., Akhavein, Berger, and Humphrey, 1997).Length: 48 pages

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 06034.

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Date of creation: Aug 2006
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Handle: RePEc:eti:dpaper:06034

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  1. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, 1996. "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Center for Financial Institutions Working Papers 96-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Mester, Loretta J., 1996. "A study of bank efficiency taking into account risk-preferences," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1025-1045, July.
  3. Nobuyoshi Yamori & Kozo Harimaya & Kazumine Kondo, 2003. "Are Banks Affiliated with Bank Holding Companies More Efficient Than Independent Banks? The Recent Experience Regarding Japanese Regional BHCs," Asia-Pacific Financial Markets, Springer, vol. 10(4), pages 359-376, December.
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Cited by:
  1. Robert DeYoung & Douglas Evanoff & Philip Molyneux, 2009. "Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature," Journal of Financial Services Research, Springer, vol. 36(2), pages 87-110, December.
  2. HOSONO Kaoru & SAKAI Koji & TSURU Kotaro, 2007. "Consolidation of Banks in Japan: Causes and Consequences," Discussion papers 07059, Research Institute of Economy, Trade and Industry (RIETI).

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