How competitiveness evolved in the Japanese bank loan market between 1977 and 2020

Tomoya Maruyama

Japan and the World Economy, 2024, vol. 69, issue C

Abstract: In this study, I estimate the degree of competition in the Japanese loan market using a new empirical industrial organization method. With it, I conduct a long-term analysis of more than 40 years that includes the effect of financial deregulation prior to 2000. The model adopts an appropriate identification strategy in the estimation by introducing a rotation term to the demand function. This study also has an examination of the mechanism behind the long-term development of competition to test the validity of two hypotheses: the efficient structure hypothesis and the market power hypothesis. The findings are as follows: (1) The Japanese loan market was the least competitive around 1980, and competition has intensified since then. (2) After 2000, competition has generally increased, especially among large city banks with a nationwide presence. (3) The correlation analyses between market concentration, degree of competition, and cost efficiency indicate that the results are consistent with the efficient structure hypothesis except for the period around 2000. In contrast, the results are consistent with the market power hypothesis in the 1990s, but become inconsistent thereafter.

Keywords: Bank competition; Japanese loan market; Financial intermediary; Conduct parameter; Market power; Efficient structure hypothesis (search for similar items in EconPapers)
JEL-codes: G21 G28 L11 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:69:y:2024:i:c:s0922142523000580

DOI: 10.1016/j.japwor.2023.101232

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