Valuing and ranking Japanese Banks: Application to Japan Post Bank and Mizuho Bank

Abstract

Data Envelopment Analysis has been widely used to measure the technical efficiency of banks. Although technical efficiency provides information about how much inputs could be reduced or outputs expanded, bank owners and potential acquirers are likely more concerned with the value of the bank and how it compares to other banks. We apply the decision-making unit (DMU) pricing approach to value Japanese banks which operated during March 2014–March 2016. Each bank’s monetary value is determined by the adjoint transformation of the technology matrix and these estimates complement other financial information. We find that the values for the newly privatised Japan Post Bank and for the post-merger Mizuho Bank fell during the period. This study is the first empirical application of DMU pricing.

Keywords:

• DMU pricing measure
• adjoint transformation
• Japanese banks
• data envelopment analysis (DEA)

JEL codes:

• G21
• C61
• D24