Organizational Form, Keiretsu, Efficiency and productivity: An Analysis of Japanese Commercial Banking Industry

Abstract

This paper examines the efficiency and productivity performance of Japanese commercial banking\r\nin the period of 1983 to 1996. We study the impact of the alternative organizational forms on Japanese bank\r\nperformance. The keiretsu effect and the extent of non-performing loans (NPLs) are both considered in our\r\nanalysis. By applying the advanced cross-frontier analysis, we show that the two organizational forms we\r\nexamine, city and regional banks, are irreplaceable facing their production environment in terms of efficiency\r\nperformance. In addition, using a longer-term data, we show that the productivity of Japanese banks increases\r\nbefore the collapse of bubble but decreases thereafter after bubble collapsed. The regional factors such as local\r\neconomic downturns may have caused productivity decrease for regional banks than for city banks.\r\nThroughout our sample period, it is the technological change, not efficiency change, that explains the\r\nproductivity change of Japanese banks. Finally, the results suggest that considering the impact of nonperforming\r\nloans is important in the productivity analysis of Japanese banking.