Does branch network size influence positively the management performance of Japanese regional banks?

Abstract

ABSTRACTThis article investigates whether branch network expansions by Japanese regional banks influence their management performances positively at a time when management environments surrounding regional financial institutions have become increasingly severe due to the population decreases and shrinkage of regional economies. Specifically, the effects of numbers of regional bank branches on their credit businesses and profits are empirically examined. The results indicated that regional banks with more branches can increase their loans and bills discounted as well as their small and mid-sized enterprises loans and bills discounted. Thus, establishing more branches is effective in increasing the total sum of loans and bills discounted by each bank because regional banks with many branches can make contact with more customers. On the other hand, return on assets and return on equity of regional banks with more branches were found to be lower. Therefore, regarding the cost performance of regional banks, establishing too many branches and maintaining branch networks that are too large can have negative effects on regional banks.