Determinants of Branch Expansion by Japanese Regional Banks

-- Kozo Harimaya and Kazumine Kondo

This study aims to identify the motivations for Japanese regional banks to expand their branch networks, and to clarify whether banks with wide networks of branches can practice region-based relationship banking. We use the data on Japanese regional banks for the Fiscal Years (FY) 2002-06, which is approximately the time period during which Financial Services Agency (FSA) required regional financial institutions to practice relationship banking. First, we examine the background of branch expansion and the differences in the extent of branch networks. Next, we test whether banks with wide networks of branches practice region-based relationship according to the purpose of FSA’s ‘Relationship Banking Policy’. Results indicate that (1) regional banks whose headquarters are located in less competitive and less wealthy markets more frequently tend to expand their branch networks geographically; and (2) branch expansions have a negative influence upon the results of relationship banking. Thus, from a policy perspective, our findings suggest that the current complicated situation of the Japanese regional banks is inconsistent with region-based relationship banking.

© 2012 IUP. All Rights Reserved.

Impact of Mergers and Acquisitions on the Shareholder Wealth of the Select Acquirer Banks in India: An Event Study Approach

-- V K Shobhana and N Deepa

Mergers and Acquisitions (M&A) are considered to be on the fast track for increasing the size, expanding branch network, and enlarging business operations. The evolution of M&A has been long drawn. In this paper, an attempt has been made to determine the shareholder value addition consequent to merger announcements with respect to the six selected bank mergers during the post-liberalization period, i.e., 1991 to 2005. Suitable statistical tools were employed in the analysis of the data. The effect of merger announcements of the banks on their shareholders’ value was evaluated based on the Abnormal Returns (AR) and cumulative abnormal returns arrived at using Market Model (MM), Market-Adjusted Model (MAM) and Buy and Hold Abnormal Returns (BHAR) model for various event windows. The results of the study indicate that there is a decline in the shareholder wealth when the securities of the select banks are more prone to market risk, while there is an increase in the shareholder wealth when the systematic risks (market risks) of the select public and private sector banks are the same as that of the market (benchmark) portfolio.

© 2012 IUP. All Rights Reserved.

The Determinants of Efficiency of Islamic Banks

-- Mohamad Akbar Noor and Nor Hayati Bt Ahmad

The paper investigates the efficiency of the Islamic banking sector in 25 countries during the period 1992-2009 using data for 78 Islamic banks. The efficiency estimates of individual banks are evaluated using the nonparametric Data Envelopment Analysis (DEA) method. The empirical findings seem to suggest that the World Islamic banks have exhibited high pure technical efficiency. During the period of study, pure technical inefficiency was found to have greater influence in determining the total technical inefficiency. Secondly, it is suggested that further analysis of the World Islamic banking sector’s efficiency should consider specific factors relating to high-income countries’ leading the efficiency over the years compared to banks operating in middle and low-income countries. The results show a positive relationship between bank efficiency and size and profitability, while a negative relationship between bank efficiency and loans intensity and capitalization. A multivariate analysis based on the Tobit model reinforces these findings specifically for profitability. The return on equity has a positive but statistically insignificant relationship with bank efficiency. The finding implies that the higher the return on equity, the higher the bank productivity growth will be.

© 2012 IUP. All Rights Reserved.

The Contagion Effect of Fair Value Accounting: Some Evidence from Indian Banking Industry

-- M Subramanyam

Increasing evidence has been reported by researchers regarding the amplifying negative quality of fair value-oriented accounting regime. Critics have blamed the fair value accounting for amplifying the recent subprime crisis and causing a financial meltdown in the US. This paper investigates the contagion (negative) effect of introducing fair value accounting for commercial banks in India and its relationship with changes in the banks’ Non-Performing Assets (NPA) ratio. It is found that there is evidence to suggest significant increase in the NPA ratios of the banks due to the introduction of fair value-oriented accounting of the banks’ assets. The analysis suggests that increased bank contagion associated with fair value accounting is more likely to spread to banks that are inherently weak (in respect of capital adequacy and other parameters).

© 2012 IUP. All Rights Reserved.

Research Note: Effectiveness of Training in Indian Banks: Some Evidences from the Punjab Region

--Jaspreet Kaur and R Jayaraman

Training is one of the most important strategies for organizations to help employees gain proper knowledge and skills needed to meet the challenges in an organizational environment (Rosow and Zager, 1988; and Goldstein and Gilliam, 1990). The training unit, in a successful program, understands the organization’s strategic direction and designs and implements a creative way of moving people in that direction. When the people grow to a point where they are ready for responsibilities beyond their initial assignment, training and development becomes imperative. Training and development is not only concerned with helping individuals to adequately fill their positions, but it is also concerned with helping the whole organization and sub-departments to grow and develop. Training and development, though primarily concerned with people, is also concerned with technology, the precise way an organization does business.

© 2012 IUP. All Rights Reserved.

Research Note: An Empirical Analysis of Customer Satisfaction of Foreign Remittance Services

--Manvinder Singh Pahwa and Manveen Kaur

Foreign remittances have become an important component of balance of payments for developing economies. Gordon and Gupta (2004) observed that growth in NRI deposits gained momentum in the 1980s in conjunction with the increasing number of Indians going abroad, particularly to Gulf countries. So, in order to attract their savings back to India, the government formulated NRI deposit schemes that made the deposits fully repatriable and also offered attractive interest rates.

© 2012 IUP. All Rights Reserved.