Performance of agricultural cooperative banks in Japan: Difference between stock and flow output variables

Abstract

Purpose

The purpose of this paper is to investigate the efficiency of the banking business of Japan’s agricultural cooperatives (JAs), which depend heavily on financial business with non-farmers, contradictory to cooperative principles.

Design/methodology/approach

The authors construct a panel data set over 2005–2016 from the financial statements of JAs’ prefectural-level federations and use the input distance stochastic frontier model with a time-variant inefficiency effect for analysis. Both the flow and stock measures of the banking output are used in identical models and the efficiency results are compared. The authors also investigate the determinants of efficiency by using the Tobit and ordinary least squares regression models.

Findings

There is strong evidence of significant prefectural differences in efficiency values. The ratio of lending to non-members to total loans is positively related to efficiency. In contrast, the higher reliance on a central organization and credit business leads to lower efficiency.

Research limitations/implications

Apart from banking, JAs provide mutual insurance business services. As the authors investigate only the efficiency of JAs’ banking business in this study, it would be necessary to investigate the efficiency of their insurance business as well when evaluating JAs’ overall financial business.

Originality/value

There are few studies that investigate the efficiency of JAs’ banking business and its determinants, although significant attention has been paid to their excessive dependence on the financial business.

Citation

Harimaya, K. and Kagitani, K. (2020), "Performance of agricultural cooperative banks in Japan: Difference between stock and flow output variables", Agricultural Finance Review, Vol. 80 No. 1, pp. 38-50. https://doi.org/10.1108/AFR-03-2019-0036