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Efficiency in the Japanese trust banking industry: A stochastic distance function approach

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  • Yamori, Nobuyoshi
  • Harimaya, Kozo

Abstract

This paper aims to assess the technical efficiency of Japanese trust banks by using the stochastic distance function approach, which is suitable for analyzing complex trust banks but has never applied for Japanese trust banks. Although the trust banking industry has been one of the most restricted financial sectors in Japan, it has recently been deregulated, particularly in terms of entry restrictions. Most noteworthy was the approval of the entry of the foreign-owned trust banks that represented the financial liberalization at that time. The traditional theory expects that allowing new entry makes market more competitive and therefore players become more efficient to survive. Therefore, it is interesting to investigate whether the liberalization made Japanese banks more efficient. The results indicate that the traditional domestic trust banks possess a technical efficiency superior to new entrants (i.e., foreign-owned trust banks). However, we failed to find an apparent tendency for trust banks to be more efficient now than in the pre-liberalization period.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21381.

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Date of creation: 06 Mar 2010
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Handle: RePEc:pra:mprapa:21381

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Keywords: Japanese trust banking industry; Deregulation; Foreign-owned banks; Technical efficiency;

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