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Effects of diversification on bank efficiency: Evidence from Shinkin banks in Japan

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  • Harimaya, Kozo
  • Ozaki, Yasufumi

Abstract

This study investigates whether diversification leads to improved performance in Shinkin banks, a representative cooperative financial institution in Japan. Shinkin banks’ soundness is important for the regional financial system on which small- and medium-sized enterprises depend. We consider loan and income diversification and use four measures of portfolio concentration. We find that loan and income portfolio concentrations increase inefficiency, regardless of concentration measures. These findings suggest the importance of Shinkin banks changing their current portfolios, which skew toward mortgage loans and the real estate sector. Furthermore, excessive convergence of the income structure across Shinkin banks reduces efficiency.

Suggested Citation

  • Harimaya, Kozo & Ozaki, Yasufumi, 2021. "Effects of diversification on bank efficiency: Evidence from Shinkin banks in Japan," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 700-717.
    • Handle: RePEc:eee:reveco:v:71:y:2021:i:c:p:700-717
    DOI: 10.1016/j.iref.2020.10.008
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    More about this item

    Keywords

    Diversification; Efficiency; Focus; Cooperative financial institutions; Japan;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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