PRE- AND POST-MERGER PERFORMANCES OF SHINKIN BANKS IN JAPAN

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Abstract

The purpose of this paper is to describe the performances and consequences of Cooperative (Shinkin) bank merger activities that took place from 1994 through 2003 in Japan. Not only were there a large number of mergers, but these bank mergers were complicated during the sample period compared to another type of banking institutions. Banks are classified into three groups; "the surviving bank" (which takes control of another Shinkin bank), "the absorbed bank" (that has been consumed by a surviving one) and "the control bank" (that has not been related to any merger activities in the same region and during the sample period). Financial indicators such as profitability, soundness and efficiency, related to these three classes are analyzed by the difference-in-difference method and panel estimation. Profitability of the surviving banks plummeted immediately after a merger, only to find it improving after a few years. The efficiency of surviving banks improved in terms of cost reduction, especially by reducing labor cost. Soundness of surviving banks which was lower than that of control banks became worse after merging with the absorbed bank. However, their soundness returned to an average level within a few years. Our findings suggest that the consolidation of banks could be an effective measure as a strategy to exist.

Keywords: Bank Mergers, Profitability, Soundness, Efficiency, Japan

JEL Classification: G21, G34, R11

Received: 21.05.2018

Accepted: 06.08.2018

Published online: 20.08.2018

How to cite this paper: Harada, K. (2018). Pre- and post-merger performances of Shinkin banks in Japan. Corporate Governance and Sustainability Review, 2(2), 13-29. https://doi.org/10.22495/cgsrv2i2p2