Effects of diversification on bank efficiency: Evidence from Shinkin banks in Japan

Kozo Harimaya and Yasufumi Ozaki

International Review of Economics & Finance, 2021, vol. 71, issue C, 700-717

Abstract: This study investigates whether diversification leads to improved performance in Shinkin banks, a representative cooperative financial institution in Japan. Shinkin banks’ soundness is important for the regional financial system on which small- and medium-sized enterprises depend. We consider loan and income diversification and use four measures of portfolio concentration. We find that loan and income portfolio concentrations increase inefficiency, regardless of concentration measures. These findings suggest the importance of Shinkin banks changing their current portfolios, which skew toward mortgage loans and the real estate sector. Furthermore, excessive convergence of the income structure across Shinkin banks reduces efficiency.

Keywords: Diversification; Efficiency; Focus; Cooperative financial institutions; Japan (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:71:y:2021:i:c:p:700-717

DOI: 10.1016/j.iref.2020.10.008

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