Effect of Amakudari on Bank Performance in the Post-bubble Period

One of the curiosities about the Japanese banking sector for Westerners is the close connection between banks and the financial authority, namely Ministry of Finance (MoF). One of the important sources of this connection is the practice called amakudari. Amakudari symbolizes the practice under which retired government officials "descend from their heaven" to be employed in the private sector. The practice has long been carried out in the banking sector, as well as many other industrial sectors in Japan. Previous studies, particularly Horiuchi and Shimizu (2001), examined the effect of the close connection between banks and the financial authority in Japan, so-called amakudari. However, their observation did not cover the “post-bubble” period in which one may expect some changes. The present study reexamines this amakudari practice adopting the latest data, redesigning and developing the previous model. It found that the overall effect of amakudari was reduced through the 1990s, but this is just because of the reduction of amakudari appointments. In fact, the gap between the banks with amakudari and the others became even wider in recent years.