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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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

Keywords: Distance to default Bank merger Financial holding company;

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Find related papers by JEL classification:
  • G19 - Financial Economics - - General Financial Markets - - - Other
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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Cited by:

  1. Saldías, Martín, 2013. "Systemic risk analysis using forward-looking Distance-to-Default series," Journal of Financial Stability, Elsevier, vol. 9(4), pages 498-517.
  2. Mariassunta Giannetti & Andrei Simonov, 2009. "On the Real Effects of Bank Bailouts: Micro-Evidence from Japan," Working Papers 2009.103, Fondazione Eni Enrico Mattei.
  3. 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.
  4. Nakashima, Kiyotaka, 2015. "An Econometric Evaluation of Bank Recapitalization Programs with Bank- and Loan-level Data," MPRA Paper 70704, University Library of Munich, Germany.
  5. Manish K. Singh & Marta Gómez-Puig & Simón Sosvilla-Rivero, 2015. "“Bank risk behavior and connectedness in EMU countries”," IREA Working Papers 201517, University of Barcelona, Research Institute of Applied Economics, revised Jun 2015.
  6. 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.
  7. George Halkos & Roman Matousek & Nickolaos Tzeremes, 2016. "Pre-evaluating technical efficiency gains from possible mergers and acquisitions: evidence from Japanese regional banks," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 47-77, January.
  8. Martín Saldías, 2012. "Systemic risk analysis and option-based theory and information," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.

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