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Measuring Japanese bank performance: a dynamic network DEA approach

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Abstract

A dynamic two-stage network model of production incorporating financial regulatory constraints is developed and estimated for Japanese commercial banks. In the first stage of production bank managers use three desirable inputs (labor, physical capital, and equity capital) to produce two intermediate outputs-deposits and other raised funds. The first stage is constrained by the level of non-performing loans produced in a preceding period. In the second stage, the bank managers use the first stage intermediate outputs to produce desirable outputs of loans and securities investments and an undesirable output of non-performing loans. The dynamic framework allows resources to be allocated over time to maximize the production of desirable outputs and simultaneously minimize the production of undesirable outputs.

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Notes

  1. The Japanese fiscal year begins April 1 and ends March 31 so that FY2010 uses data reported at the end of March 2011.

  2. Note that if \(\beta^{t} ,\beta^{t + 1} ,\beta^{t + 2}\) are unrestricted, one or two of these may become negative.

  3. Wang et al. (1997) were one of the first to treat deposits as an intermediate product in a two-stage problem, where their initial inputs are fixed assets, employees, IT investments, and others, and the final outputs are profits, loans recovered, and other investments. This framework is also used by Chen and Zhu (2004). Fukuyama and Weber’s (2010) framework incorporates Sealey and Lindley’s intermediation approach into a network model.

  4. The account used for lending owned securities, including securities loaned on stock lending agreement.

  5. http://www.boj.or.jp/en/statistics/boj/other/reservereq/junbi.htm/.

  6. We define time deposits as the categories of time deposits, installment deposits and negotiable CDs.

  7. The deflator for calendar year 2005 = 100, but bank financial statements are the values at the end of March and hence we use that for fiscal year 2005 as the base year. Therefore, the deflator for fiscal year 2005 is not equal to 100 but 99.6.

  8. See http://www.zenginkyo.or.jp/en/for the categorization of Japanese banking system.

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Acknowledgments

We are grateful for the helpful and insightful suggestions of Rolf Färe, Robin Sickles and Kazuyuki Sekitani and two anonymous reviewers. We are also grateful to the Grant-in-Aid for Scientific Research from Culture, Sports, Science and Technology, Grant Numbers 23510165 (C) and 25282090 (B).

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Authors and Affiliations

  1. Faculty of Commerce, Fukuoka University, 8-19-1 Nanakuma, Jonan-Ku, Fukuoka, 814-0180, Japan

    Hirofumi Fukuyama

  2. Department of Economics and Finance, Southeast Missouri State University, Cape Girardeau, MO, USA

    William L. Weber

Authors
  1. Hirofumi Fukuyama
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  2. William L. Weber
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Corresponding author

Correspondence to Hirofumi Fukuyama.

Appendix

Appendix

See Table 12.

Table 12 Bank names, IDs, and type (C = city, R = regional)
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Fukuyama, H., Weber, W.L. Measuring Japanese bank performance: a dynamic network DEA approach. J Prod Anal 44, 249–264 (2015). https://doi.org/10.1007/s11123-014-0403-1

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