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


  • Kaoru Hosono
  • Koji Sakai
  • Kotaro Tsuru


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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  • Kaoru Hosono & Koji Sakai & Kotaro Tsuru, 2006. "Consolidation of Cooperative Banks (Shinkin) in Japan:Motives and Consequences," Discussion papers 06034, Research Institute of Economy, Trade and Industry (RIETI).
  • 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. 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;Japanese Association of Financial Economics and Engineering, vol. 10(4), pages 359-376, December.
    3. 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.
    4. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, "undated". "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Finance and Economics Discussion Series 1997-09, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Kaoru Hosono & Koji Sakai & Kotaro Tsuru, 2009. "Consolidation of Banks in Japan: Causes and Consequences," NBER Chapters,in: Financial Sector Development in the Pacific Rim, East Asia Seminar on Economics, Volume 18, pages 265-309 National Bureau of Economic Research, Inc.
    2. International Monetary Fund, 2012. "Japan; Selected Issues," IMF Staff Country Reports 12/209, International Monetary Fund.
    3. repec:ebl:ecbull:eb-16-00470 is not listed on IDEAS
    4. International Monetary Fund, 2012. "Japan; Financial Sector Assessment Program—Technical Note on Credit Intermediation," IMF Staff Country Reports 12/262, International Monetary Fund.
    5. Barros, Carlos Pestana & Managi, Shunsuke & Matousek, Roman, 2009. "Productivity growth and biased technological change: Credit banks in Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 924-936, December.
    6. Yoshino, Naoyuki & Taghizadeh-Hesary, Farhad, 2016. "Major Challenges Facing Small and Medium-sized Enterprises in Asia and Solutions for Mitigating Them," ADBI Working Papers 564, Asian Development Bank Institute.
    7. 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;Western Finance Association, vol. 36(2), pages 87-110, December.

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