RIEB, Kobe University

Disciplinary Pressure is More Necessary for Cooperative Banks Than Stock Banks:Results from Bank Efficiencies Estimation

How to discipline managers of cooperative structured financial institutions (co-ops) is considered to be a critical issue by the Japanese financial regulatory authorities, because co-ops play a significant role in the domestic banking market, especially for small and medium-sized enterprises. This paper seeks to clarify whether the effect of the governance-related variables on firm performance varies across stock and cooperative banks in Japan. The results in this paper confirmed that the presence of outside directors has a significant effect on efficiency measures for cooperative banks. In contrast, such variables have no significant effect for stock banks. These results suggest that outsider directors' discipline is more necessary for cooperative banks than stock banks, which are under strong pressure from shareholders.