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Banks restructuring sonata: How capital injection triggered labor force rejuvenation in Japanese banks

Author

Listed:
  • Kazuki Onji

    () (Graduate School of Economics, Osaka University)

  • Takeshi Osada

    () (Faculty of Service Management, Bunri University of Hospitality)

  • David Vera

    () (Department of Economics, California State University)

Abstract

Divergent interests of bank managers and financial regulators potentially compromise the efficacy of bank rescue operations. This paper analyses an agency problem encountered in a capital injection program implemented in Japan. We hypothesize that the operation fs requirement to downsize lead banks to overstate the extent of downsizing by reassigning older workers to bank subsidiaries. We implement a difference-in-difference analysis using a panel of Japanese banks from 1990 through 2010. We also employ propensity score matching to control for the sample selection. The result shows that recipients of public capital exhibited workforce rejuvenation relative to non-recipient banks. Among injected banks, average worker age falls by approximately one year, which is equivalent to about seventy less 65-years-old workers. On stand-alone basis, the number of employees in injected banks decreases as a response to injection, but on consolidated basis, which accounts for subsidiary employment, the number of employees at banking does not fall. Our finding suggests that the Japanese practice of life-time employment survived, albeit in a limited form, among restructuring banks.

Suggested Citation

  • Kazuki Onji & Takeshi Osada & David Vera, 2014. "Banks restructuring sonata: How capital injection triggered labor force rejuvenation in Japanese banks," Discussion Papers in Economics and Business 14-22, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:1422
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1422.pdf
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    References listed on IDEAS

    as
    1. Duchin, Ran & Sosyura, Denis, 2014. "Safer ratios, riskier portfolios: Banks׳ response to government aid," Journal of Financial Economics, Elsevier, vol. 113(1), pages 1-28.
    2. Flannery, Mark J. & Hankins, Kristine Watson, 2013. "Estimating dynamic panel models in corporate finance," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 1-19.
    3. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 339-376.
    4. Genda, Yuji & Rebick, Marcus E, 2000. "Japanese Labour in the 1990s: Stability and Stagnation," Oxford Review of Economic Policy, Oxford University Press, vol. 16(2), pages 85-102, Summer.
    5. David H. Autor, 2003. "Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 1-42, January.
    6. Onji, Kazuki & Vera, David & Corbett, Jenny, 2012. "Capital injection, restructuring targets and personnel management: The case of Japanese regional banks," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 495-517.
    7. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
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    More about this item

    Keywords

    Recapitalization program; lifetime employment; Japanese banks;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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