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Lessons from mergers and acquisitions of regional banks in Japan: What does the stock market think?

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  • Kobayashi, Ayami
  • Bremer, Marc

Abstract

Japanese regional banks are now facing an existential crisis. Their traditional business model has been devastated by the hollowing out of regional economies, technological change, declining populations and the rapid aging of Japan's non-urban areas. These banks must either go out of business or make significant changes. Reorganizations are a potential change that might solve the problem. Reorganizations include mergers and forming bank holding companies. This research examines regional bank reorganizations over the period from 2008 to 2019. It analyzes the stock market's response to announcements of bank reorganizations. A positive response is defined as stock price appreciation. It is a measure of the value that an efficient financial market attributes to the reorganization. This research finds that some kinds of reorganizations create more value than others. Specifically, mergers between banks within prefectures create more value. Yet, within prefecture mergers have the disadvantage that they might concentrate the provision of banking services in the hands of a few providers, leading to poorer services and higher fees. These reorganizations may violate competition law. Nevertheless, within-prefecture mergers may be a better overall solution to the regional bank crisis.

Suggested Citation

  • Kobayashi, Ayami & Bremer, Marc, 2022. "Lessons from mergers and acquisitions of regional banks in Japan: What does the stock market think?," Journal of the Japanese and International Economies, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:jjieco:v:64:y:2022:i:c:s0889158322000120
    DOI: 10.1016/j.jjie.2022.101202
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    Cited by:

    1. Ueda, Kozo, 2024. "Effects of bank branch/ATM consolidations on cash demand: Evidence from bank account transaction data in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 71(C).
    2. Harimaya, Kozo & Jinushi, Toshiki, 2023. "The effects of quantitative easing policy on bank lending: Evidence from Japanese regional banks," Japan and the World Economy, Elsevier, vol. 67(C).
    3. Uesugi, Iichiro & Hiraga, Kazuki & Manabe, Masashi & Yoshino, Naoyuki, 2022. "Measuring concentration in the Japanese loan and deposit markets," Japan and the World Economy, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Japanese regional banks; Mergers; Bank holding company; Event study;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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