Bank Herding, Size, and Financial Health: Evidence from Japanese Regional Banks

Abstract

This paper examines the herd behavior of regional banks during financial fluctuations using loan data on Japanese banks from the 1980s to the 1990s. We use the herding measure developed by Lakonishok, Shleifer, and Vishny (1992) and Uchida and Nakagawa (2007) to detect evidence of herding and its inefficiency. The findings are threefold. First, herding and its inefficiency was consistently observed, regardless of financial fluctuations. Second, the magnitude of herding was not related with bank sizes. Finally, the herding magnitude was positively related with bank's financial health.