Impact of learning through credit and value creation on the efficiency of Japanese commercial banks

Abstract

This study investigates the learning curve of commercial banks regarding the efficiency of credit and value creation. However, current empirical methods for accessing the learning curve in organizations are not suitable for use in financial institutions. Considering bank-specific characteristics, we introduce a dynamic learning curve using a cost function adjusted to capture learning-by-doing in banks. Using the model, we test several hypotheses on the impact of bank intermediary experience (learning) on the efficiency of credit and value creation in Japanese commercial banks. The findings show that bank intermediary learning significantly improves the cost efficiency gain in the gross value created, total credit created, and investment. However, bank intermediary experience has no significant effect on the efficiency of the economic value created for all the banks analyzed. These findings have practical implications for evaluating cost dynamics in bank credit and value creation, risk management, lending to the real sector, and shareholder value creation.

Impact of international expansion strategy on the performance of Japanese banks

“…Furthermore, we introduce a new measure of bank performance, lending e ciency, based on the nancial intermediation services indirectly measured (FISIM) drawn from the system of national accounts (SNA). FISIM is the spread between the loan interest rate and deposit interest rate relative to the market spread rate, and focuses only on the productive activities of banks (Aduba & Izawa, 2021). This spread provides management e ciency for MNB in international markets as the bank is able to exploit interest rate differentials across various markets, transfer funds internally, and reap generous pro ts (Havrylchyk & Jurzyk, 2011;Qian & Delios, 2008).…”