Herd Behavior in the Japanese Loan Market: Evidence from Bank Panel Data

Posted: 11 Oct 2007 Last revised: 27 Dec 2010

See all articles by Hirofumi Uchida

Hirofumi Uchida

Kobe University - Graduate School of Business Administration

Ryuichi Nakagawa

Kansai University - Faculty of Economics

Abstract

This paper investigates whether Japanese banks had been following herd behavior in the domestic loan market from 1975 through 2000. Applying the technique developed by Lakonishok, Shleifer, and Vishny [Lakonishok, J., Shleifer, A., Vishny, R.V., 1992. The impact of institutional trading on stock prices, J. Finan. Econ. 32, 23-43] to the data from loans outstanding to different types of borrowers, we obtain evidence indicative of the existence of herding. City banks in Japan had been following a cyclical pattern of herding with one of the peaks around the bubble period in the late 1980s. Adjusting further for herding resulting from rational behavior, evidence indicative of the existence of irrational herding was observed only in the bubble period. Our estimate indicates that a total of some 5 trillion yen of loan increase by city banks during the period of 1987-1989 can be attributed to irrational herd behavior. The results imply that irrational bank behavior in the late 1980s might have contributed to the problems Japanese banks had with non-performing loans. We also obtained evidence for herding among regional banks and among geographically proximate banks.

Keywords: Herd behavior, LSV herding measure, Adjusted LSV herding measure, Banks, Loan market, Japan

JEL Classification: C12, G14, G23

Suggested Citation

Uchida, Hirofumi and Nakagawa, Ryuichi, Herd Behavior in the Japanese Loan Market: Evidence from Bank Panel Data. Journal of Financial Intermediation, Vol. 16, No. 4, pp. 555-583, 2007, Available at SSRN: https://ssrn.com/abstract=1020463

Hirofumi Uchida (Contact Author)

Kobe University - Graduate School of Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501
Japan
81-78-803-6949 (Phone)

HOME PAGE: http://www.b.kobe-u.ac.jp/~uchida

Ryuichi Nakagawa

Kansai University - Faculty of Economics ( email )

3-3-35
Yamate
Suita, Osaka 564-8680
Japan
+81-6-6368-0590 (Phone)
+81-6-6339-7704 (Fax)

HOME PAGE: http://www2.itc.kansai-u.ac.jp/~ryu-naka/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
907
PlumX Metrics