Efficiency in the Japanese Trust Banking Industry: A Stochastic Distance Function Approach

24 Pages Posted: 19 Mar 2010

See all articles by Nobuyoshi Yamori

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration

Kozo Harimaya

Sapporo Gakuin University

Date Written: March 14, 2010

Abstract

This paper aims to assess the technical efficiency of Japanese trust banks by using the stochastic distance function approach, which is suitable for analyzing complex trust banks but has never applied for Japanese trust banks. Although the trust banking industry has been one of the most restricted financial sectors in Japan, it has recently been deregulated, particularly in terms of entry restrictions. Most noteworthy was the approval of the entry of the foreign-owned trust banks that represented the financial liberalization at that time. The traditional theory expects that allowing new entry makes market more competitive and therefore players become more efficient to survive. Therefore, it is interesting to investigate whether the liberalization made Japanese banks more efficient. The results indicate that the traditional domestic trust banks possess a technical efficiency superior to new entrants (i.e., foreign-owned trust banks). However, we failed to find an apparent tendency for trust banks to be more efficient now than in the pre-liberalization period.

Keywords: Japanese trust banking industry, Deregulation, Foreign-owned banks, Technical efficiency

JEL Classification: G21, G28

Suggested Citation

Yamori, Nobuyoshi and Harimaya, Kozo, Efficiency in the Japanese Trust Banking Industry: A Stochastic Distance Function Approach (March 14, 2010). Available at SSRN: https://ssrn.com/abstract=1570445 or http://dx.doi.org/10.2139/ssrn.1570445

Nobuyoshi Yamori (Contact Author)

Kobe University - Research Institute for Economics & Business Administration ( email )

2-1, Rokkodai cho
Nada-ku
Kobe, 657-8501
Japan

Kozo Harimaya

Sapporo Gakuin University ( email )

Sapporo 062-8520
United States

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