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Bank valuation and size: Evidence from Japan

Author

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  • Sakawa, Hideaki
  • Watanabel, Naoki
  • Sasaki, Hitoshi
  • Tanahashi, Noriko

Abstract

This study empirically analyzes whether the valuation of large commercial banks increases with their size. We investigate publicly listed banks in Japan because the Japanese financial system is known to be bank-centered and has several large-sized banks that can be treated as “too-big-to-fail” (TBTF). Our results weakly support the positive relationship between size and Tobin's q for Japanese banks, different from banks in the United States. This implies that a kind of TBTF premium exists, owing to the safety-net function of Japanese banks. However, the benefits of the TBTF premium vanish after controlling for bank fixed effects. Thus, we conjecture that Japanese TBTF banks engage in riskier bank activities, which results in lowering their valuations, as in the case of U.S. banks.

Suggested Citation

  • Sakawa, Hideaki & Watanabel, Naoki & Sasaki, Hitoshi & Tanahashi, Noriko, 2020. "Bank valuation and size: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:pacfin:v:63:y:2020:i:c:s0927538x20302638
    DOI: 10.1016/j.pacfin.2020.101403
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    Cited by:

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    More about this item

    Keywords

    Bank size; Bank valuation; Too-big-to-fail;
    All these keywords.

    JEL classification:

    • 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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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