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Sales-Maximization vs. Profit-Maximization: Managerial Behavior at Japanese Regional Banks 1980-2009

Author

Listed:
  • Kozo Harimaya

    (Faculty of Business Administration, Ritsumeikan University)

  • Takao Ohkawa

    (Faculty of Economics, Ritsumeikan University)

  • Makoto Okamura

    (Faculty of Economics, Ritsumeikan University)

  • Tetsuya Shinkai

    (School of Economics, Kwansei Gakuin University)

Abstract

In this paper, we analyze the managerial behavior of firms by estimating a nested objective function consistent with the framework of Fershtman and Judd (1987). Using data for Japanese regional banks for FY 1980-FY 2009, we focus on oligopolistic behavior in the domestic loan market and examine the intensity with which managers attempt to maximize sales and profits. We find that sales-maximization explains the behavior of Japanese regional banks more adequately and appropriately than profit-maximization. In particular, yearly fluctuations of the degree of managerial objectives suggest that the effort to maximize sales has intensified after full-scale liberalization of interest rates.

Suggested Citation

  • Kozo Harimaya & Takao Ohkawa & Makoto Okamura & Tetsuya Shinkai, 2012. "Sales-Maximization vs. Profit-Maximization: Managerial Behavior at Japanese Regional Banks 1980-2009," Discussion Paper Series 94, School of Economics, Kwansei Gakuin University, revised Sep 2012.
    • Handle: RePEc:kgu:wpaper:94
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    File URL: http://192.218.163.163/RePEc/pdf/kgdp94.pdf
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    References listed on IDEAS

    as
    1. Uchida, Hirofumi & Nakagawa, Ryuichi, 2007. "Herd behavior in the Japanese loan market: Evidence from bank panel data," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 555-583, October.
    2. Calem, Paul S & Carlino, Gerald A, 1991. "The Concentration/Conduct Relationship in Bank Deposit Markets," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 268-276, May.
    3. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    4. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
    5. Berg, Sigbjorn Atle & Kim, Moshe, 1994. "Oligopolistic Interdependence and the Structure of Production in Banking: An Empirical Evaluation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(2), pages 309-322, May.
    6. Yamori, Nobuyoshi, 1998. "Bureaucrat-managers and corporate governance: expense-preference behaviors in Japanese financial institutions," Economics Letters, Elsevier, vol. 61(3), pages 385-389, December.
    7. Uchida, Hirofumi & Tsutsui, Yoshiro, 2005. "Has competition in the Japanese banking sector improved?," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 419-439, February.
    8. Kano, Masaji & Tsutsui, Yoshiro, 2003. "Geographical segmentation in Japanese bank loan markets," Regional Science and Urban Economics, Elsevier, vol. 33(2), pages 157-174, March.
    9. Hiroshi Izawa & Yoshiro Tsutsui, 1998. "Managerial objectives in Japanese banking: a test of the expense preference hypothesis," Applied Financial Economics, Taylor & Francis Journals, vol. 8(1), pages 89-99.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Tetsuya Shinkai & Takao Ohkawa & Makoto Okamura & Kozo Harimaya, 2015. "Strategic Delegation of Indebted Firms in a Duopoly with Uncertain Demand," Discussion Paper Series 135, School of Economics, Kwansei Gakuin University, revised Sep 2015.

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    More about this item

    Keywords

    firm objective; strategic delegation; managerial incentives; financial liberalization and banking;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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