Further Study on the Performance of Mergers among Credit Associations in Japan

Abstract

The recent trends toward consolidation in financial markets, both global and national, and the difficult state of the Japanese financial industry suggest the importance of an examination of consolidation in the Japanese financial industry. Recent mega-mergers have produced enormous banks such as the Bank of Tokyo-Mitsubishi, but as usual in Japan the health of the financial industry depends substantially on small and medium-size institutions. There the recent trend toward merger extends back a few decades. This study reports a further examination of performance of mergers among credit associations (CA) in Japan, using a sample of 25 pairs of merging and non-merging institutions. Each pair is chosen for comparability in terms of variates such as size and geography. Performance is measured by 19 financial ratios sampled during the period of 1983–1998. Considering pre-versus post-merger values of various ratios, mergers have significant positive effects on ratios such as non-personnel expenses ratio, income ratio after tax, loan-deposit ratio, deposit per office and deposit per association's member. But mergers have rather negative effects on net equity ratio and ratio of current expense to current income. On balance mergers are a positive factor in the CA industry. These results contradict the conclusions of earlier studies (Hoshino, 1988). Among relative financial ratios (comparing merging and non-merging CA), the effect of merger on yield on interest received and non-personnel expenses ratio are shown to be positive in this sample, contradicting previous results. However, in general the financial characteristics of merging CA are rather inferior to those of non-merging CA.