Did the Japanese Stock Market appropriately
Price the Takenaka financial reform?∗

Masaya Sakuragawa and Yoshitsugu Watanabe**

Abstract
Using event study methodology, we study how the stock market evaluates the Japanese financial
reform, so-called, “Takenaka Plan”. We list up several financial events that occurred in 2002
and 2003, including the announcement of the introduction of Takenaka Plan, the release of work
schedule for implementing the financial reform, the release of a package of monetary policies
initiated by Fukui new governor of Bank of Japan (2003, March), and failures of Resona Bank
(2003, May) and Ashikaga Bank (2003, November). We find that market participants came toperceive little by little that the government appropriately implements Takenaka Plan in an
attempt to improve bank governance. The credibility to the reform drastically increases in theevents that occurred in 2003. The estimations on the failures of Resona and Ashikaga reveal thatbank shareholders differentiate individual banks by their financial conditions that are targeted to
improve bank governance. The monetary policy also played an important role.

∗

We are greatly thankful to Taka Ito, Ken Koibuchi, Randall Morck, Andrew Rose, and participantsof East Asia Seminar on Economics held in Singapore and the 8th Macro-Conference held in Keio
University. This project is supported by Nijyuuisseiki Bunka Gakujyutu Zaidann.
**Keio University, masaya@econ.keio.ac.jp1

1.

Introduction
The Japanese financial crisis almost ended in 2005, after one decade and around since its

onset. Over this interval, the Japanese government continued a policy of forbearance, and it was
not until the introduction of the drastic financial reform, so-called, “Takenaka Plan”, that the
government effectively made an effort to combat the crisis and to accelerate the disposal of
non-performing loans. Takenaka Plan that was first announced in October 2002 is remarkable inthat it is the first reform that attempted to restore the confidence in the Japanese banking sector
by requesting strongly banks to improve bank governance. Bank governance is virtuallyeffective through market discipline and the government supervision. Behind the introduction of
Takenaka Plan is the weak bank governance. The financial authority had poor ability ofsupervising banks. The government has taken a policy of regulatory forbearance to avoid thefinancial crisis and the consequent economic stagnation. The forbearance policy allowed banks
to understate the amount of non-performing loans and to engage in accounting discretions inmeeting minimum capital requirements. The stock market played little disciplinary role on bankgovernance. Borrowing firms and financial institutions of the same corporate group held
substantial amount of equities of banks.
What the government chose is not to use market discipline but to strengthen the government
supervision to banks. The government, along Takenaka Plan, strongly requested banks toaccelerate the disposal of non-performing loans and to improve the transparency of financial
information to stop engaging in accounting discretion in meeting minimum capital requirements.
However, what makes things difficult is the behavior of stock prices. If pessimistic investors
react contagiously to the financial reform, it is difficult to implement the financial reform that
relies on the prudential regulation of capital requirements because Japanese banks that held
substantial amounts of equities were vulnerable to declines in stock prices. The necessity for thepolicy coordination between the government and BOJ (Bank of Japan) became an issue. In
March 2003, the new governor of BOJ, Fukui, announced a package of monetary policies toaccommodate Takenaka Plan, including the continuation of the ample provision of liquidity tobanks and an increase in the maximum total amount of equity holdings it purchases from banks.
The purpose of this paper is to study the market evaluation of Takenaka Plan, using event2

study methodology. We list up several financial events that occurred in 2002 and 2003,
including the announcement of the introduction of Takenaka Plan, the release of work schedule
for implementing the financial reform, the release of a package of monetary policies initiated by
Fukui new governor of BOJ, and failures of Resona Bank and Ashikaga Bank. For each of theevents, we examine three hypotheses. The first hypothesis is if the impact of each event on thestock market return is positive or negative, or zero toward the banking sector as a whole. The
second hypothesis is if the impact on the stock market return, if it exists, is uniform acrossbanks, regardless of differences of the financial condition of the individual banks. The third
hypothesis is that if the impact reflects more than pure contagion across banks, including
financial conditions of individual banks.
Specifically, we investigate if the response of each event to the stock market reflects the
improvement of financial supervisory policy and bank governance. In evaluating estimation
results, how market participants changed their expectation for the implementation of thefinancial reform over time is interesting to examine. In addition, by comparing between results
before and after the monetary policy, it is valuable to evaluate the role of the policy coordinationon the financial reform. The estimation for the market reaction to each individual event that
occurred after the introduction of Takenaka Plan will be a first step to evaluate the financial
reform and the improvement of bank governance in Japan.
BrewerⅢ et al. (2003), a paper that is closely related to ours, estimate how the stock market
prices financial conditions of individual banks for the failures of four commercial banks andtwo securities firms that occurred for the period from 1995 to 1998. Their finding reports that tosome extent the stock market incorporate information on financial conditions of individual
banks in prices although the ability of the Japanese stock market to price the riskiness offinancial firms was recognized to have been low due to the poor transparency of bankinformation. The methodology and some of financial variables used in our paper are common
and comparable to theirs, and the present analysis provides a base for assessing the Japanesefinancial supervisory policy before and after the introduction of Takenaka Plan.
A number of papers have studied the effectiveness of the Japanese financial supervisory
policy using an approach of an event-study analysis. Peek and Rosengren (2001) study the3

government reaction to the Japan’s premium problem that occurred from 1995 to 1998, andreport that the announcement by the government was not effective to the reduction of thepremium, but capital injections to banks were effective.1 Spiegel and Yamori (2003) study thestock market response to two financial regulatory reforms passed in 1998, the Financial
Reconstruction Act and the Rapid Recapitalization Act, and report that shareholders of regionalbanks responded favorably to the legislation of these acts, while those of large banks did
adversely. Spiegel and Yamori (2004) argue that market participants perceive the financial
supervisory policy as a “too-big-to-fail” policy, but that the tendency to favor large banks has
been diminishing over time. Yamori and Kobayashi (2007) study the effect of thenationalization of Resona Bank on the stock market, and report that as the government
announces the protection of shareholders of Resona, market participants came to regard theinjection of public funds for the nationalization as a too-big-to-fail policy.
This paper is organized as follows. Section 2 surveys the financial supervisory policy inJapan since 1998. Section 3 explains the methodology. Section 4 explains data. Section 5 reports
the empirical results. Section 6 examines other related events. Section 7 concludes.

2.

Financial Supervisory Policy in JapanIn 1997, three large financial institutions, Sanyo securities, Hokkaido Takushoku Bank, andYamaichi securities, failed, and in 1998 the financial supervisory policy came to the turning
point.2 In July, Financial Supervisory Agency was founded as an independent agency of the
fiscal authority, (which was reorganized as Financial Services Agency in June 2000). In October,two financial regulatory reforms, the Financial Reconstruction Act and the Rapid
Recapitalization Act, were passed. These two acts were aimed to rule the injection of publicfunds to weak banks, the nationalization of failing banks, and the protection of depositors. Soon
after the legislation, two major banks, Long Term Credit Bank of Japan and Nippon Credit Bank,
failed and were nationalized. The arrangement toward the effective financial supervisory policy
1

Ito and Harada(2004), since 2001, credit derivative swaps are a good indicator of Japanese bankrisk.
2
It is now commonly recognized that the government took a policy of regulatory forbearance tohelp weak banks and had no well functioning supervisory policy (e.g. Ito and Sasaki (2002),
Shrieves and Dahl(2003), Hosono and Sakuragawa (2003), and others) .
4was formally established. In March 1998 and March 1999, the government injected public funds
into the banking sector in an attempt to avoid the financial crisis and the associated economic
stagnation. As Figure 1 illustrates, just after the legislation of the Financial Reconstruction Act,the stock market rapidly recovers. The stock market seems to have priced the de facto
establishment of financial supervisory policy favorably.
In January 1999, Mr. Yanagisawa was appointed as financial supervisory minister to headfinancial supervisory policy. He addressed that Japanese banks were recovering, and took astance against the drastic disposal of non-performing loans and the nationalization of failingbanks. In order to accelerate the disposal of non-performing loans, under the head of Minister
Yanagisawa, the financial authority started to audit the amounts of non-performing loans. In thespecial audit conducted by the financial authority in the period from 2000 to 2001, the total
amount of non-performing loans disclosed by individual banks was 34 trillions and over, while
the total amount audited by the financial authority was 47 trillions and over. The discrepancy
amounted to 35 percent. This observation suggests that even after the legislation of the two acts
for financial reforms, financial authority had poor ability of assessing bank assets.
The government kept a policy of regulatory forbearance in managing minimum capitalrequirements. In 1998, deferred tax assets were allowed to be accounted for as regulatory bankcapital. Accounting for deferred tax assets provides bank managers with much discretion. The
estimate of deferred tax assets depends on managers’ assessment of their firms’ ability togenerate future taxable income, which is highly subjective. In addition, the limit on the extent towhich Japanese banks can use deferred tax assets for regulatory capital was very lax. Skinner(2005) argues that since its introduction, banks have used deferred tax assets to compensate fordeclines in bank capital that arose from unrealized losses on the holdings of stocks. The
government implicitly allowed banks to use subordinated debt as a tool of regulatory arbitrage.
Fukao and JCER (2003) calculate the “true” bank capital by excluding problematic capital fromthe regulatory capital and reports that, as of March 2002, the true capital ratio in the BIS
standard amounted only to 1.36 percent even after including public funds as bank capital. The
stock market also seems to have questioned the government ability of supervising banks.
Spiegel and Yamori (2003) argue that market participants perceived the Financial

5

Reconstruction Act as a tool of helping weak banks. These observations suggest that in the
period of 1998-2002, the financial authority had poor ability of supervising banks. Stock prices
begin to decline again in October 1999.
BOJ continued a stance for monetary loosing to avoid further decline in stock prices and theconsequent financial crisis. Despite the huge amount of liquidity supply, however, stock prices
continued to decline.
In October 2002, Minister Yanagisawa was forced to take a responsible for the possible
recurrence of the financial crisis and replaced by Heizo Takenaka that released the “Financial
Revitalization Program”, so-called, “Takenaka Plan” to accelerate the disposal of
non-performing loans. Behind this policy change is a recognition that a policy of forbearance
led to huge amounts of bad loans and non-performing loans, and the prolonged stagnation of theJapanese economy. A regulatory forbearance in managing minimum capital requirementsallowed Japanese banks to roll over loans to insolvent firms [e.g. Hosono and Sakuragawa(2002), Peek and Rosengren (2005), and others]. The subsidized lending consequently led tocredit misallocation from manufacturing firms with high productivity to non-manufacturingfirms with low productivity [e.g. Caballero et al(2003)], and became one important source of theslowdown of economic growth in the Japanese economy.
In the end of November 2002, the government announced the detailed work schedule for
implementing Takenaka Plan. Takenaka Plan has mainly three contents. First, the government
requested banks to disclose the amount of non-performing loans on a more rigorous standard.
Second, the government took a policy against banks that engage in regulatory arbitrage to meet
minimum capital requirements. Specifically, the government requested banks not to overstatedeferred tax assets. Third, the government promised to arrange a scheme for injecting publicfunds into weak but solvent banks by adopting Deposit Insurance Law, Article 102 that is
intended to help banks that are vulnerable to the financial crisis.
Although the government strongly appealed the implementation of the reform, someobservers have disappointed with the announced work schedule. Before the release of work
schedule, observers expected the time table of tightening of assessment rules on deferred tax
assets, it remained unspecified. In addition, the rigorous rule for adopting Deposit Insurance

6Law was not settled. Toward the end of this year, stock prices continued to decline.
In the early of 2003, the decline in stock prices did not stop. The government began to fear
the occurrence of financial crisis triggered by the decline in stock prices. Japanese banks held
substantial amounts of equities so that they are vulnerable to stock market risk. The
policymakers became to recognize the necessity of policy coordination between the government
and BOJ.
Mr. On 25 March, 2003, Fukui, as a new governor of BOJ, announced a package of newmonetary policies New monetary policies had mainly three pillars: first, BOJ decided tocontinue the ample provision of liquidity to banks, secondly decided to apply the Lombard-type
lending facility to the official discount rate by suspending the restriction on the maximum
number of days, and thirdly decided to extend the maximum total amount of equity holdings itpurchases from banks to 3 trillion yen by 1 trillion yen.3 The third pillar is a so-called,“non-traditional policy”, that aims to interrupt the transmission of risk from the stock market tothe banking sector. In November 29, 2002, BOJ implemented the first-round purchase of
equities held by banks. The stock market worked out the bottom in March and around that wascoincident with when Fukui new governor released a package of new monetary policies.
On May, 2003, the collapse of Resona, one of the Japanese largest banks, was disclosed
after its auditors did not agree to the recognition of excessively estimated deferred tax assets,
and requested the write-off of part of deferred tax assets. The capital ratio on the BIS standard
was disclosed to be about 2 percent at the earnings report as of March, 2003, below theminimum required for ordinary operation, 4 percent. This collapse triggered an immediate
emergency meeting of the Government’s Financial Service Management Council, headed byPrime Minister Koizumi, and a subsequent massive injection of public funds following the
Deposit Insurance Law, Article 102-1-1.
The bankruptcy proceeding following Article 102-1-1 involves the injection of public funds
and the restructuring on the government initiative, followed not by liquidation, unlike in thecase of Long Term Credit Bank of Japan and Nippon Credit Bank. The article 102-1-1 is applied

3

The governor Fukui stated before the press that BOJ was ready for purchasing all the equities heldby banks if the worst scenario came.
7

to a failing bank whose net asset is positive, but later the audit by the financial authority exposes
the possible negative net asset for Resona.
The government, however, announced the protection for the shareholders of Resona Banknot to bear the substantial costs just after two days following the announcement of
nationalization. Some observers criticized this statement for the reason that this policy became
the source of weakening market discipline. Although the unclear government attitude led tomuch controversy, stock prices apparently reversed the trend upwardly in May that was almost
coincident with the period of the failure of Resona Bank.
The financial authority audited Ashikaga Bank, one of the largest regional banks, anddisclosed the inappropriate loan classification, the shortage of loan loss reserves, andoverstatement of differed tax assets. Taken this information into account, the net asset of
Ashikaga was disclosed to be negative in the earning report as of September, 2003. This report,
in 29 November, 2003, triggered an immediate emergency meeting of the Government’s
Financial Service Management Council and a subsequent injection of public funds following the
Deposit Insurance Law, article 102-1-3.
The bankruptcy proceeding following 102-1-3 involves the acquisition of all stocks at zeroby the government while protecting all deposits, the restructuring on the government initiative,
and the sale of bank assets to other banks. Unlike the case of Resona, shareholders bear thesubstantial costs. Stock prices kept the upward trend.
From 2003 to 2004, the financial authority conducted the third-round special audit. The total
amount of non-performing loans disclosed by individual banks was 34 trillions and over, while
the total amount audited by the financial authority was 36 trillions and over, and the discrepancy
reduced to 5.5 percent. This observation seems to reveal that the ability of supervising banks
improved to some extent.
It is now widely recognized that by the introduction of Takenaka Plan the accuracy ofassessing bank assets and the transparency of financial conditions seems to have improved, but
the market reaction to each individual event varied over time. Below we examine the market
response to Takenaka Plan using an event-study approach.

8

3.

Methodology
First of all, we examine three impotents events that occurred in 2003, the release of a

package of monetary policies initiated by Fukui new governor of BOJ, and failures of Resona
Bank and Ashikaga Bank. For each of the three events, we examine three hypotheses. The first
hypothesis is if the impact of each event on the stock price is positive or negative, or zero
toward the banking sector as a whole. The second hypothesis is if the impact on the stock
market return if it exists, is uniform across banks, regardless of differences of the financial
condition or other characteristics of the individual banks. The third hypothesis is that if the
impact reflects more than pure contagion across banks, and market participants differentiate theriskiness of individual banks by their financial condition.
Each of events occurred on the same day for all the banks. It is likely that the abnormal
returns are correlated contemporaneously among the individual banks. This is the reason why
we cannot use the typical estimation for the event study that calculates the aggregatedcumulative abnormal returns (see also footnote 4 below).
When the abnormal returns in the individual banks have contemporaneous correlation with
one another, there are two different approaches: The first is the “portfolio approach” in which
the bank level analysis can be applied to a portfolio into which the abnormal returns areaggregated using event time. This approach has an advantage of allowing for cross correlationof the abnormal returns. The second is an application of a multivariate regression model withdummy variables for the event date. Comparing between the two approaches, the lattermethodology has an advantage of testing the null hypothesis that the event has no impact using
individual bank data.
The estimation, following BrewerⅢ et al. (2003), takes the form;
Rit = α i + β i Rmt +1∑γ D + ε
ik

k

（1）

it

k =0

where Rit is the stock return of bank i on day t ; α i is the intercept coefficient for bank i ;Rmt is the market index for day t ; β i is the market risk coefficient for bank i ; Dk is abinary variable that equals 1 if day t is equal to the event day or window k (k ∈ [0,+1]) , zerootherwise; γ ik is the event coefficient for bank i ; and ε it is a random error. Thus, the9estimated parameters γ ik capture any daily intercept shifts on event day (window) k andprovide an estimate of abnormal (excess or unexpected) returns associated with the event
announcement on day (window) k .
We do not estimate each of individual equations independently, but estimate equation (1) asa system of separate equations in the sample using generalized least squares (GLS). To permit
the variance of the residuals to vary across banks, we apply SUR (seemingly unrelated
regression).4
The values of the parameters in Equation (1) are estimated using daily data before and after
each event date over an observation period sufficiently long to obtain meaningful results.
However, because the three events that occurred in 2003 are reasonably close to one another, wehave to be careful to the possible effects of specific events on subsequent events. To avoid thisproblem, following Brewer Ⅲet al.(2003), Equation (1) is modified so as to permit a shift in
both the intercept ( α ) and the market index coefficient ( β ) after the first event:
Rit = α i + β i Rmt + α i P + β i PRmt +

1

∑∑ γ
e

ik ,e D ke + ε it

（2）

k =0

where e is the number representing each of events, the announcement of new monetary policy( e =1), the failure of Resona( e =2), and the failure of Ashikaga ( e =3), and γ ik ,e is thecoefficient for bank i for the event e(= 1,2,3) , and P is a binary variable that is equal to 1
for the period after the first event window, the announcement of new monetary policy, and zerootherwise. We do so because the event days are close to each other.
First, in order to access the impact of each event on the stock market return as a whole in the4

Because the events occurred on the same day for all the banks, it is likely that the residuals in theindividual bank equations are correlated contemporaneously. Thus, we adjust for contemporaneous
correlation. The methodology used in this article makes the standard assumptions that the residuals
are independent and identically distributed within each equation and independent of the market
return and the binary event variables; the noncontemporaneous correlation of residuals across banks
is zero; and there is no event-induced heteroskedasticity. Thus the covariance matrix of the residuals
in equation(8) has following structure: σ 12 I σ 12 I L σ 1n I σ 21I σ 22 I L σ 2 n I 
E (εε ') =
 M
M
O
M 


2
σ n1I σ n 2 I L σ n I 
where I is the identity matrix and N is the number of banks in the sample.
10

banking industry, we test the following hypothesis using the estimated coefficients in (2);
H 0mean :1(γ 1k ,e + γ 2k ,e + L + γ Nk ,e ) = 0
N（3）

Equation (3) represents the hypothesis that the simple average of the coefficients of the daily
abnormal stock market return in the sample is zero. If market participants perceive the impactsof each event favorably on the banking industry as a whole, the average will be positive, whileotherwise, it will be negative. Note that large banks may have a great impact on the market pricefor the banking industry as a whole. To take into account the possible impacts of large banks, wetest also the hypothesis with asset-weighted coefficient.
H 0Wmean : v1γ 1k ,e + v 2 γ 2 k ,e + L + v N γ Nk ,e = 0（4）where vi is the weight on bank i that is calculated by dividing the total market value of banki by the sum of total market values of all banks. Additionally, we compute the cross-sectional
median of abnormal returns and test the hypothesis that the number of banks with positive
abnormal returns is greater than 50 percent in the sample.
H 0median : median = 0（5）

If market participants perceive the impacts of each event favorably, the median is expected topositive, while otherwise, it is expected to be negative. For this hypothesis test, we compute thet test statistic and check the sign test.
Secondly, we test the pure contagion hypothesis by accessing if the impact of each of theevents is equal across all banks. We examine the following hypothesis
H 0AR : γ 1k ,e = L = γ Nk ,e（6）

Equation (6) represents the hypothesis that the coefficients of the daily abnormal stock market
return in the sample are equal across all banks. If shareholders differentiate the riskiness of
individual banks, the hypothesis is rejected, whereas if otherwise, the pure contagion hypothesis
will not be rejected. For hypothesis test, we compute the standard asymptotic χ 2 test statistic
and the F-statistic.
Third, given that the pure contagion hypothesis is rejected, we test if the evidence ofcross-sectional variation in the responses of the surviving banks reflects their own financial

11

condition. To do this, we expand Equation (2) to include a number of conditioning variables thatreflect the financial characteristics of each bank and two control variables;
Rit = α i + β i R mt + α i P + β i PR mt+∑ γ D + ∑ φ D COND + ∑ θ D SH + ∑ λ D TA + µ
ke

ke

e

e

ke

e

i

e

ke

i

e

e

ke

i

（7）
it

e

where γ ke is the coefficient for all banks for the event e(= 1,2,3) , CONDi is a variable that
describes the financial condition of bank i at the time of the event, TAi is the log of total
assets for bank i at the time of the event, and controls for bank size, and SH i controls for the
exposure of bank i to the failed bank through equity investments.5 The Positive coefficient ofTAi may reveal the evidence of a too-big-to-fail policy. If the response of the stock market tothe event reflects individual bank conditions, coefficients of either CONDi or SH i are
statistically different from zero. We test the following hypotheses;

Η 0cond : φe = 0（8）: θe = 0

（9）

H0

SH

for each of the three events and a number of measures of CONDi and SH i . The coefficient ofSH i , θ e , may capture the government attitude toward the shareholders of the failed bank. Ifshareholders receive nothing in the event of failure, the coefficient of SH i is expected to be
negative.
We list up nine descriptive variables as representing the financial condition of banks; 1) the
ratio of nonperforming loans to total loans outstanding (NPL); 2) the ratio of reported loan loss
reserves to risk-weighted regulatory capital (LLR); 3) the ratio of domestic loans to firms in theconstruction industry, real estate, and finance and insurance, (which are typically assumed to beriskier than other loans) to total domestic loans (RISKY); 4) the ratio of bank capital to totalbank assets calculated based on either international or domestic standard (CAPITAL); 5)theratio of subordinated debt to risk-weighted regulatory capital (SUB); 6) the ratio of deferred tax
assets debt to risk-weighted regulatory capital(DEF); 7) the ratio of liquid assets to total bank5

SH i is defined as SH i = ρ i TA j TAi , where ρ i is the percent of outstanding shares of thefailed institution j that was owned by bank i , TA j is the total assets of the failed institution

j , and TAi is the total assets of the surviving bank i .

12assets(LIQ); 8) the ratio of the market value of stocks to total bank assets(STO), and 9); the ratioof the latent gains (losses) of stocks to total bank assets(GAIN).
If banks disclose non-performing loans accurately, NPL and LLR are supposed to reflect thetrue magnitude of non-performing loans, and banks with higher values of NPL and LLR aresupposed to be in weaker financial condition. The marginal impact of each event is expected to
be greater in weaker banks with a higher value of NPL, and the sign is expected to be positive（ φ1 > 0 ）for the announcement of new monetary policy, and negative （ φ2 < 0, φ3 < 0 ）for two
failures of banks. Loan loss reserves are, in principle, against non-performing loans, and weakerbanks with higher ratio of non-performing loans should account for a higher value of LLR. The
expected signs are φ1 > 0, φ2 < 0,φ3 < 0 .
As we have discussed in Section 2, it has been commonly recognized that, before theintroduction of Takenaka Plan, reported non-performing loans were undervalued. If the stock
market has already incorporated this information into pricing, two variables explained above,
NPL and LLR, may not appropriately reflect the soundness of banks. As a complementary
variable, we use the ratio of domestic loans to firms in the construction industry, real estate, andfinance and insurance (which are typically assumed to be riskier than other loans) to total
domestic loans (RISKY).
A number of recent works, including Hoshi (2000), Sakuragawa (2002), and Hosono and
Sakuragawa (2002), report that banks helped many of nearly bankrupt firms in these threeindustries by rolling over loans to these firms. Banks, in principal, should account for loan loss
reserves against loans extended to almost bankrupt firms, but unless the financial authority
severely inspects non-performing loans, banks will dress up their reported balance sheets byclassifying these problem loans as good loans. For this reasoning, we use RISKY as a proxy topotential non-performing loans. Banks with a higher value of RISY tend to extend more badloans, and the expected sighs are φ1 > 0, φ2 < 0, φ3 < 0 .
We use CAPITAL as a measure of basic variable that captures the effect of minimum capitalrequirements. Banks with a smaller value of CAPITAL are more likely to be constrained byminimum capital requirements and affected more strongly by each of the events. The expectedsighs are φ1 > 0 , φ 2 < 0,φ3 < 0 .

13

Subordinated debt is allowed to account for as Tier 2 complementary capital in the local ruleof capital requirements. However, in Japan subordinated debt is held by mainly insurancecompanies that are under double gearing with issuer banks（e.g. Fukao and TCER (2003)）. Itoand Sasaki (2002) and Hosono and Sakuragawa (2002) report that banks with poor capitaltended to issue more subordinated debt to dress up reported balance sheets.
In 1998, the government allowed to account for deferred tax assets as bank capital up to
expected earnings in future five years. Skinner (2005) argues that since the introduction ofdeferred tax assets, banks have used deferred tax assets to compensate for declines in bankcapital that arose from unrealized losses on the holdings of stocks. He finds that, over the periodof 1998- 2003, average

ROA is negatively correlated with deferred tax assets among largebanks, and that weaker banks with poor prospect of future earnings tended to account for greater
deferred tax assets.
The government implicitly allowed banks to use subordinated debt and deferred tax assets
as tools of regulatory arbitrage. Taking into account the accounting manipulation on regulatory
capital, we use SUB and DEF as measures of regulatory arbitrage in capital requirements.
Banks with a higher value of SUB will be identified as banks that have scarce true capital andhave to rely more on subordinated debt to meet minimum capital requirements, and hence areaffected more strongly by each of the events. The expected sighs are φ1 > 0 , φ2 < 0,φ3 < 0 .
Similarly, banks with a high value of DTA will also be identified as weak banks. The expected
signs are φ1 > 0, φ2 < 0,φ3 < 0 .
LIQ is a variable that may be expected to have a great impact at the event of the package of
new monetary policy released by Governor Fukui. If bank shareholders think the shortage ofliquidity as a serious problem in the banking sector, an announcement for the additional supplyof liquidity should affect stock prices favorably. Banks with a lower value of LIQ are more
likely to suffer the liquidity shortage, and affected more strongly by the monetary loosing. The
expected sign is φ1 < 0 .
STO and GAIN are variables that are expected to capture the influence of the change instock prices on banks. The policy for purchasing stocks by BOJ is supposed to weaken theadverse effect of the stock market decline on banks. Banks with a higher value of STO tend to14

be more vulnerable to the stock market risk, and hence affected more favorably by this policy.
The expected sign is（ φ1 > 0 ）. Banks with greater losses on the stock holding tend to be more
vulnerable to the stock market risk, and hence affected more favorably by this policy. The
expected sign is（ φ1 < 0 ）. The stock price of banks that hold a greater proportion of the stock of
the failed bank is expected to decline more sharply. The coefficient of SH i is expected to be（ θ 2 < 0,θ 3 < 0 ）.

4.

Data
Daily stock prices and returns for our sample of 80 publicly traded and surviving banks are

obtained from the Toyo Keizai Kabuka CD-ROM for 307 business days from October 1, 2002
to December 30, 2003. All dates were Japanese dates. Market returns are measured by the
TOPIX Index, which includes seasoned shares of over 1000 major companies including bothbanks and nonbanks (First Section) traded on the Tokyo Stock Exchange, from the CD-ROM of
the TOYO KEIZAI Inc.’s tock price database. The data on the financial condition of individual
banks are obtained from the Nikkei NEEDS financial statement database.
On financial data of individual banks, we use the earning reports released as of March, 2003.
The announcement dates of new monetary policy and the two failures are obtained through asearch of the statement released by BOJ and a search of the Nihon Keizai Shinbun. Actually,
BOJ announced a package of new monetary policies on March 25, 2003. At this stage, earning
reports as of March 2003 were not yet released, but banks usually released the prediction of
their earning in the interim period. It will be conceivable to think that market participants form
the almost rational expectation on this information about the financial condition of individual
banks.
If each announcement was made during a trading day in Japan, that date is used as the eventday .If an announcement was made after the market was closed or over the weekend, we use thenext trading date as event date. Following this criterion, we set the event days of the release of a
package of monetary policies initiated by Fukui new governor of BOJ, and failures of Resona
Bank and Ashikaga Bank as March 25, 2003, May 19, 2003, and December 1, 2003.
The number of banks used in the analysis is 80 in which stock market data is available

15

except for Resona and Ashikaga, both of which are excluded from the sample to avoid thesurvivorship bias. Note the in this sample period a number of mega banks are established bymerger. We exclude Mitsui-Sumitomo Bank that is established by the merger of Sumitomo Bankand Sakura Bank for the reason that the stock market data is available only after 29 November,
2002.

5.

Empirical Results
Table 1 reports estimation results on (3), (4), and (5).The first column in the table reports theresult for the estimated abnormal returns of individual banks for Day0 of each event window,
the second column the results for Day+1, and the third column the results for the [0,+1] window.
For the new monetary policy announced by Governor Fukui, the first row, denoted, “Simple
Mean”, reports the average of the coefficients on the abnormal stock market return, and beneaththe first reports t values.6 The average of abnormal stock market returns are positive andsignificant for Day0, negative and insignificant for Day+1, and positive and significant for the[0,+1] window. The third row, denoted, “Weighted Mean”, reports the asset-weighted average ofthe coefficients on the abnormal returns, and beneath the third reports t values. The abnormal
returns are positive and significant for Day0, negative and significant at 10% level for Day+1,
and positive and significant for the [0,+1] window. The two alternative estimations both seem toshow that market participants perceive the BOJ new policy as favorable. The differential resultof Day+1 may reveal that the new policy may have disappointed shareholders of large banks.
The row denoted, “Median”, reports the median of the abnormal returns of individual banks.
The row denoted, “Positive”, reports the number of banks whose abnormal return is positive,
and the row denoted, “Negative”, the number of banks whose abnormal is negative. The row
denoted, “sign-test”, reports z values on the statistical significance for the median. On the event
Day0, among 80 surviving banks, abnormal returns are positive for 62 banks, and the median is
6

In November 29, 2002, BOJ implemented the first-round purchase of equities held by banks. But
we do not examine this event because there were some reasons to support that some impacts of thispolicy were already incorporated into stock prices. For example, TOPIX shoot up 1.66% on news
that BOJ first announced the stock purchasing plan in September 18, 2002 and 3.32% on news that
BOJ released “Stock Purchasing Guidelines” in October 11, 2002. On the other hand, it moves up
only 0.52% in November 29, 2002. On the other hand, on the second-round purchase of equities, noleak on information was not found.
16

positive and significant. On the event Day+1, the number of banks whose abnormal return isnegative is more than a half, (46 banks), and the median is negative but insignificant. On thetwo-day window, the median is positive and significant. The results for the three event days
suggest that stockholders of banks evaluate new monetary policy favorably to the banking
industry.
For the estimation of the failure of Resona Bank, the row, denoted, “Simple Mean”, reportsthat the average of the coefficients on the abnormal return is negative and significant in any of
the three windows. The results on “Weighted Mean” also report that the average is negative andsignificant in any of the three. In more than a half of banks, abnormal return is negative, and the
median is negative and significant in any of the three windows. Market participants seem toincorporate new information on Resona Bank as negative into stock prices.
On the other hand, for the failure of Ashikaga Bank, the row, denoted, “Simple Mean”,
reports that the average of the coefficients on the abnormal return is negative and significant for
Day0, but positive and significant for Day+1. For the [0,+1] window, the estimated value isnegative but slightly significant. The results on “Weighted Mean” report that the average isnegative and significant for Day0, and negative but insignificant for Day+1. The results on the
median report that the number of banks whose abnormal return is negative is more than a halfon the window [0], but less than a half on the window [+1].
While the average abnormal stock returns are negative for both Day0 and Day+1 in the caseof Resona, but in the case of Ashikaga it becomes positive in the second day. In addition, in thesecond day, the stock price of more than a half number of banks rises. Market participants seemto perceive that the failure of Ashikaga is local and does not transmit to other surviving banks.
In other words, market participants may have anticipated the rapid government response bynationalization.
Table 1 reports estimation results on (6). Rows beneath “H0：γ1=…=γ80=0” report χ2-statistic and F-statistic. In any of the events, the pure contagion hypothesis is rejected. For eachof the events, market participants seem to differentiate the riskiness of individual banks byfinancial condition and other characteristics.
We turn to the investigation for individual financial conditions. For the event of new17

monetary policy, the upper part in Table 2 reports estimation results. None of financial variables
is significant. The coefficient of LIQ is especially expected to be significant, but it isinsignificant. Neither STO nor GAIN is significant. Although market participants perceive themonetary package as favorable to the banking industry as a whole, they do not seem to regard it
as a tool of screening banks by their conditions.
For the event of the failure of Resona, the central part in Table 2 reports estimation results.
Among variables of financial conditions, RISKY, CAPITAL, DEF, and GAIN are statisticallysignificant. The statistical significance of CAPITAL and DEF will reveal that market
participants turned to perceive Takenaka Plan as an effective tool to strengthen supervisory
policies. Particularly, the negative and significant coefficient of DEF reflects the fact that the
government nationalized Resona by not allowing Resona to overestimate differed tax assets asbank capital. Market participants seem to perceive that banks with greater deferred tax assets
will be constrained more severely by capital requirements.
Neither NPL nor LLR is significant, while RISKY is significant. Market participants do not
yet seem to perceive the improvement of the supervisory assessment to non-performing loans.
Indeed, the government decided to nationalize Resona by following Deposit Insurance Law,
Article 102-1-1 that is meant to be applied to the bank whose net asset is positive, but later theaudit by the financial authority detects the possible negative net asset for Resona. Market
participants perceive that non-performing loans are still understated.
The measure of bank size, TA, is insignificant. At least this finding does not reveal the market
evaluation for a too-big-to-fail policy. SH is insignificant in any of the estimations. This result
will reflect the fact that the government protects shareholders of Resona Bank following
nationalization.
For the event of the failure of Ashikaga, the lower part in Table 2 reports estimation results.
Among variables of financial conditions, five variables, NPL, LLR, CAPITAL, DEF, and SUB
are statistically significant. In terms of variables on non-performing loans, NPL and LLR are
significant, while not in the case of Resona. On the other had, RISKY is insignificant, while it issignificant in the case of Resona. Market participants come to perceive the supervisory
assessment of non-performing loans more credible than before. In terms of variables on bank18

capital, DEF and SUB are significant. Market participants seem to perceive the financial
authority to force banks not to engage in accounting discretion. SH is, unlike the case of Resona,negative and significant in any of the estimations. This result seems to reflect the fact that the
government adopts the bankruptcy proceeding under which the shareholders receive nothing.
TA is insignificant in any of the estimations.
BrewerⅢ et al.（2003）study the similar analysis using the failures of six financial
institutions, that occurred from 1995 to 1998, including Hyogo Bank, Sanyo securities,
Hokkaido Takushoku Bank, Yamaichi securities, Long Term Credit Bank of Japan, and Nippon
Credit Bank. In their cases of four bank failures, among four comparable variables of NPL, LLR,
RISKY, and CAPITAL, five among sixteen are significant. This figure amounts to about 31
percent in the total. Furthermore, in the case of failures of Long Term Credit Bank of Japan andNippon Credit Bank that occurred after the legislation of the Rapid Recapitalization Act, theproportion of significant coefficients is only 12 percent. On the other hand, the percentage rises
to 63 percent in the present analysis that focuses on bank failures that occurred after the
introduction of Takenaka Plan. Market participants seem to perceive that the supervision policy
and the bank governance considerably improved.

6.

Other Related Events.
In this section we examine other three related events. The first event is on the introductionof Takenaka Plan, the second on the announcement of work schedule for implementing
Takenaka Plan, and the third is on the announcement of the protection of the shareholders ofResona Bank.
We first examine the two events on the introduction of Takenaka Plan. We estimate equation(2) through (9) using the event day of the introduction of Takenaka Plan as October 30, 2002,
and the event day of the release of work schedule for implementing Takenaka Plan as December
28, 2002.7

7

We use daily stock prices data over 246 business days from January 4, 2002 to December 30, 2002.
On financial data of individual banks, we use the earning reports released as of March, 2002.
19

Table 3 reports the estimation results on (3), (4), and (5). For the estimation of theintroduction of Takenaka Plan, the row, denoted, “Simple Mean” reports that the average of thecoefficients on the abnormal return is positive and significant in any of the three windows. The
results on “Weighted Mean” also report that the average is positive and significant for Day1 andthe [0,+1] windows. In more than a half of banks, abnormal return is positive, and the median ispositive and significant in any of the three windows. Market participants seem to perceive theintroduction of Takenaka Plan as favorable.
On the other hand, for the announcement of schedule for implementing Takenaka Plan, therow, denoted, “Simple Mean”, reports that the average of the coefficients on the abnormal returnis negative and significant for Day0 and [0,+1] window. The results on “Weighted Mean” also
report that the average is negative and significant for Day0 and [0,+1] window. The results on
the median report that the number of banks whose abnormal return is negative is more than ahalf on the window [0] and [0,+1] window. Market participants seem to be disappointed withthe details of work schedule and be afraid of the implementation of the financial reform.
Table 3 reports estimation results on (6). Rows beneath “H0：γ1=…=γ80=0”

report χ2-statistic and F-statistic. In any of the events, the pure contagion hypothesis is rejected. For eachof the events, market participants seem to differentiate the influence of Takenaka Plan on
individual banks by financial condition and other characteristics.
We turn to the investigation for individual financial conditions. For the event of theintroduction of Takenaka Plan, the upper part in Table 4 reports estimation results. The measureof bank size, TA, has positive and significant coefficient in any of the estimations. This result
supports the too-big-to-fail hypothesis. In the early stage of the financial reform, market
participants seem to be afraid if the financial reform is adequately implemented. Among
variables of financial conditions, NPL is statistically significant but the sign is positive, contrary
to the estimations on the three events examined in the previous section. On the announcement of
Takenaka Plan, market participants may have evaluated banks with high NPL as “strong” banks
by conjecturing that strong banks will differentiate themselves from other weak banks byrevealing relatively accurate information on the amount of non-performing loans. Behind thisinterpretation is that, as of 2002, the disclosed amount of non-performing loans was understated.

20

For the event of the announcement of work schedule for implementing Takenaka Plan, thelower part in Table 4 reports estimation results. TA is negative and insignificant. Among
variables of financial conditions, two variables, CAPITAL and SUB are significant. Market
participants anticipate that the government will take a first step to prevent banks from engaging
in regulatory arbitrage to meet minimum capital requirements. DEF is insignificant. This result
will reflect the fact that at this stage the time table of tightening of assessment rules on deferred
tax assets was not specified.
We have several comments by comparing to the estimation on failures of Resona andAshikaga. First, only in the event of the introduction of the financial reform, market participants
perceive the financial reform as the too-big-to-fail policy. Second, the market perception to DEF
quite differs between events of 2002 and 2003. In neither of the two events that occurred in
2002, DEF is significant. As of 2002, market participants do not seem to perceive that the
government requests strongly banks to stop regulatory arbitrage using deferred tax assets. Third,
we find that the market evaluation on the Japanese financial reform varied over time. Among
financial conditions, the number of significant coefficients monotonically increases over time,from zero (Introduction), to two (Work Schedule), further to four (Resona), and finally to five
(Ashikaga). Market participants seem to change their expectation gradually over time on theimplementation of the financial reform. Particularly, the credibility to the reform drasticallyincreases in the latter two. One possible turning point may be the failure of Resona in which thegovernment nationalized Resona by not allowing Resona to overestimate differed tax assets asbank capital. Another applicant will be the monetary policy that played a role of guaranteeing
the implementation of the financial reform.
We next turn to the Resona event. There is much controversy on the government’s statement
for the protection of Resona shareholders following the nationalization. Some observers stress
this statement as a revival of forbearance. Yamori and Kobayashi (2007) report that in theirestimation for the event day of May 21, the bank size has a significant effect on the stock
market return, and conclude that the government’s statement for the protection of Resona
shareholders seem to have induced market participants to perceive the nationalization as a
too-big-to-fail policy.

21

We estimate equation (2) through (9) using May 21 as an event day. If market participants
regard the nationalization of Resona as a too-big-to-fail policy, the log of total asset, denoted

TA , should have a positive and significant coefficient.
Table 5 reports estimation results on (3), (4), (5). The first row, denoted, “Simple Mean”,
reports that the average of the coefficients on the abnormal return is positive and significant inany of the three windows. On the contrary, the results on “Weighted Mean” report that the
average is negative in any of the three windows and significant for Day0 and the [0,+1]
windows. This differential result may reveal that stock prices of small and regional banks rose,
but those of large banks declined. Market participants do not perceive the statement forprotection as a too-big-to-fail policy.
Table 6 reports the estimation results. SUB is positive and significant, while it isinsignificant in the estimation of May 19-20 (see Table 2). Market participants seem to perceive
the statement for protection as a revival of a forbearance policy. SH is positive and the tvalues of the coefficient improve relative to the estimation of May 19-20. This result is
contrasted with the case of Ashikaga in which SH is negative and significant. The contrasting
result between the two will reflect the different attitude of the government toward bankshareholders. TA is insignificant in any of the estimations. We do not find any result to support
for the too-big-to-fail policy.
Our estimation differs from Yamori and Kobayashi (2007) in three respects. First, as ameasure of bank size, they use a dummy variable that takes unity if the total asset of a bank islarger than that of Resona and zero otherwise, while we use the log of total asset. Second, they
control for three variables as representing the financial condition of banks, CAPITAL, NPL, and
DEF in our definition, while we use more variables including SUB and RISKY. Third, we use
the variable SH to control for the exposure of a bank to the failed bank through equity
holding.

7.

Conclusion

Using event study methodology, we study how the stock market evaluates the Japanese financial
reform, so-called, “Takenaka Plan”. We list up several financial events that occurred in 200222

and 2003, including the announcement of the introduction of Takenaka Plan, the release of work
schedule for implementing the financial reform, the release of a package of monetary policies
initiated by Fukui new governor of BOJ, and failures of Resona Bank and Ashikaga Bank. We
find that market participants came to perceive little by little that the government appropriately
implements Takenaka Plan in an attempt to improve bank governance. The credibility to thereform drastically increases in the events that occurred in 2003. The estimations on the failuresof Resona and Ashikaga reveal that bank shareholders differentiate individual banks by theirfinancial conditions that are targeted to improve bank governance. One possible turning point
may be the failure of Resona in which the government nationalized Resona by not allowing
Resona to overestimate differed tax assets as bank capital. Another applicant will be themonetary policy that played a role of guaranteeing the implementation of the financial reform.

23References
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Journal of Money, Credit and Banking Vol.35 No.4
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to Nihon Keizai, edited by M. Fukao and H. Yoshikawa, Nihon Keizai shinnbun-sya
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Japanese Banks’ Behavior”, Journal of the Japanese and International Economies 16,
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Crisis), Tokyo Daigaku Syuppannkai Skinner, Douglas. J. (2005), “The Rise ofDeferred Tax assets in Japan, The Case of the Major Japanese Banks”,
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Economic Review, forthcoming

25

FIGURE1.CHANGES IN STOCK PRICE INDEX AND JAPAN PREMIUM

2000

1.8%
Legislation of FRA

1800

1.6%

Introduction of
Takenaka Plan

1600

1.4%
Failure of

1400

Resona Bank

1.2%

1200
1.0%
1000
0.8%

Started zero interest rate policy

800

Failure of

0.6%

Ashikaga Bank

600

Started new monetary policy

0.4%

400

0.2%

200
0

0.0%

-200
1995

-0.2%
1996

1997

1998

1999

Japan Premium(right axis)

2000

2001

TOPIX(left axis)

2002

2003

2004

TOPIX Banks Index(left axis)

2005

2006

TABLE 1.

ABNORMAL RETURNS OF SURVIVING BANKS
Day 0

Day +1[ 0,+1 ]New monetary policy（ March 25, 2003）
Simple Mean

0.011

-0.0010.01

t-statistic

5.55 ***-0.51

4.09 ***

Weighted Meant-statistic

0.017
2.62 **-0.004-1.41 *

0.006
2.37 **MedianPositive
Negative

0.011
62
18

-0.002
34
46

0.011
60
20

5.45 ***-0.79

4.56 ***

F-statistic

2.61 ***

2.60 ***

5.21 ***

χ 2 -statistic

208.92 ***208.07 ***416.51 ***-0.011-0.004-0.015Sign-test; z-statistic
H 0 ： γ 1 =…=γ 80

Failure of Resona Bank（May 19, 2003）
Simple Mean

***

-2.00

-0.015
3.19 ***-0.006-1.46 *

-0.011-2.55 **

-0.0081664-0.00232
48-0.0082060-5.82 ***

-1.91 *

-5.27 ***

F-statistic

1.35 **

1.76 ***

3.16 ***

χ 2 -statistic108.23 **141.50 ***252.79 ***t-statistic
Weighted Meant-statistic
MedianPositive
NegativeSign-test; z-statistic

-5.95

**

-5.10 ***

H 0 ： γ 1 =…=γ 80

Failure of Ashikaga Bank（ December 1, 2003）
Simple Mean

-0.0130.008-0.004t-statistic-4.64 ***

3.91 ***-1.30 *

Weighted Meant-statistic-0.019-2.16 **

-0.002-0.33-0.011-1.56 *MedianPositive
Negative-0.007
25
55

0.006
55
25

0.002
45
35

-4.94 ***

3.78 ***

0.15

F-statistic

2.87 ***

1.89 ***

4.81 ***

χ 2 -statistic229.79 ***151.75 ***384.80 ***Sign-test; z-statistic
H 0 ： γ 1 =…=γ 80

Notes: ***,**,and *, indicate significance at the 1%, 5%, and 10％ levels, respectively.

TABLE2. EFFECTS OF A BANK FINANCIAL CONDITION: FOR EVENT DAY OR EVENT WINDOW k ( k ∈ [0,1] ）
NPL

LLR

RISKY

CAPITAL

SUB

DEF

LIQ

STO

GAIN

-0.0450.002-0.002

0.011

0.02

-0.005-0.028-0.121-0.058(1.09)(0.19)(0.20)(0.16)(1.03)(0.82)(1.25)(1.12)(0.26)-0.002-0.001-0.001-0.001-0.002-0.001-0.001-0.001-0.001(0.87)(0.71)(0.67)(0.70)(0.87)(0.58)(0.72)(0.72)(0.70)

0.001-0.0350.146-0.009

-0.02

0.01

-0.1080.508(0.44)(0.99)(2.25) **New monetary policy（March 25, 2003）
Cond
TA

Failure of Resona Bank（May 19, 2003）
Cond
TA
SH

-0.048***(1.15)(0.14)(2.96)-0.002-0.002-0.002(1.27)(1.02)-0.017(0.11)(2.09)*****(0.46)(3.11)-0.003-0.002-0.001-0.002-0.001-0.002(0.95)(1.43)(0.91)(0.62)(1.07)(0.77)(0.92)

0.042

0.065

0.051

0.04

0.084

0.035

0.036

0.056

(0.27)(0.41)(0.32)(0.25)(0.53)(0.22)(0.23)(0.35)-0.006

0.346-0.031

0.012-0.075-0.058(0.50)(0.69)(0.26)

Failure of Ashikaga Bank（December 1, 2003）
Cond-0.139(3.35)

TA
SH

Number of banks(4.01)***(0.38)(4.95)-0.053***(2.79)***(4.87)***-0.002-0.002-0.001-0.003

0.000

0.001

-0.0010.000-0.001(0.94)(0.83)(0.42)(1.37)(0.14)(0.28)(0.43)(0.23)(0.51)-2.219-1.995-1.904-1.645-2.073-1.983-1.965-1.928(3.68)

Number of observations-0.038******(4.22)***(3.82)***(3.65)***-1.948(3.70)***(3.13)***(3.80)***(3.79)***(3.76) ***

24560

24560

24560

24560

24560

24560

24560

24560

24560

80

80

80

80

80

80

80

80

80

Notes: *** and ** indicate significance at the 1% and 5% levels, respectively.

TABLE 3.

ABNORMAL RETURNS OF BANKS FOR FIRST ANNOUNCEMENTOF TAKENAKA PLAN AND WORK SCHEDULE
Day 0

Day +1[ 0,+1 ]

0.005

0.003

0.008

**

*

2.33 **

Introduction of “Takenaka Plan” （ October 30, 2002）
Simple Meant-statistic

2.36

Weighted Meant-statistic

0.010
1.00

0.019
1.76 **

0.015
1.59 *MedianPositive
Negative

0.002
50
30

0.001
43
37

0.002
50
30

1.86 *

0.79

2.25 **

F-statistic

1.81 ***

2.17 ***

3.99 ***

χ 2 -statistic145.08 ***174.12 ***319.20 ***Sign-test; z-statistic

1.64

H 0 ： γ 1 =…=γ 80

Release of “Takenaka Plan” Work Schedule （ November 28, 2002）
Simple Mean

-0.0180.002-0.016t-statistic-13.04 ***0.93-6.46 ***

Weighted Mean

-0.016-5.00 ***

0.000
0.13

-0.008-3.16 ***

-0.018
5
75

0.003
49
31

-0.01316
66-7.37 ***

1.89 *-5.92 ***

F-statistic

1.88 ***

2.68 ***

4.76 ***

χ 2 -statistic151.16 ***214.46 ***381.24 ***t-statistic
MedianPositive
NegativeSign-test; z-statistic
H 0 ： γ 1 =…=γ 80

Notes: ***,**,and *, indicate significance at the 1%, 5%, and 10％ levels, respectively.

TABLE 4. EFFECTS OF INTRODUCTION OF TAKENAKA PLAN AND RELEASE OF WORK SCHEDULE
FOR EVENT DAY OR EVENT WINDOW k ( k ∈ [0,1] ）
NPL

LLR

RISKY

CAPITAL

SUB

DEF

LIQ

STO

GAIN

Introduction of “Takenaka Plan” （ October 30, 2002）
Cond
TA

0.065

-0.047

0.003

0.000

-0.724

0.002

0.021

0.015

-0.106(2.62) ***(0.15)(0.21)(0.25)(0.74)(0.54)(1.30)(0.26)(1.18)

0.005

0.005

0.005

0.005

0.005

0.005

0.005

0.005

0.005

(3.92) ***(3.96) ***(4.47) ***(4.18) ***(4.74) ***(4.28) ***(4.53) ***(4.34) ***(4.63) ***Release of “Takenaka Plan” Work Schedule（November 28, 2002）
Cond
TA
Number of observations
Number of banks

0.026

0.325

-0.0280.001-2.768-0.002

0.008

0.009

0.041

(0.98)(0.97)(1.75)(1.96) **(2.71) ***(0.62)(0.46)(0.14)(0.43)-0.001-0.001-0.002-0.003-0.001-0.002-0.002-0.002-0.002(1.23)(1.34)(1.53)(1.71)(1.58)**(0.84)(1.06)(1.95)(2.17)

11680

11680

11680

11680

11680

11680

11680

11680

11680

80

80

80

80

80

80

80

80

80

Notes: *** and ** indicate significance at the 1% and 5% levels, respectively.

TABLE 5.

ABNORMAL RETURNS OF SURVIVING BANKSFOR THE STATEMENT FOR PROTECTION OF RESONA SHAREHOLDERS
Day 0

Day +1The Government announcement to protect shareholders of Resona （ May 21, 2003 ）Simple Mean
0.011
0.007
t-statistic
1.43 *
1.75 **
Weighted Mean
-0.018-0.001
**
-2.15
-0.27
t-statistic
Median-0.004
0.002
Positive
25
45
Negative55
35**
Sign-test; z-statistic-2.93
2.24 **
H 0 ： γ 1 =…=γ 80
F-statistic
1.34 **
2.06 ***
χ 2 -statistic
107.22 **165.34 ***[ 0,+1 ]0.009
1.68 **-0.010-1.54 **
-0.00425
55-4.37 ***
3.41 ***
272.77 ***Notes: ***,**,and *, indicate significance at the 1%, 5%, and 10％ levels, respectively.

TABLE 6. EFFECTS OF THE GOVERNMENT ANNOUNCEMENT TO PROTECT SHAREHOLDERS OF RESONAFOR EVENT DAY OR EVENT WINDOW k ( k ∈ [0,1] ）
NPL

LLR

RISKY

CAPITAL

SUB

DEF

LIQ

STO

GAIN

The Government announcement to protect shareholders of Resona （May 21, 2003）
Cond

TA

SH

-0.061-0.016-0.026

0.084

0.040

-0.004-0.0030.163-0.295(1.62)(1.70)(1.33)(1.23)(2.10)**(0.62)(0.12)(1.52)(1.31)

0.000

0.000

0.000

-0.001

0.000

0.000

0.000

0.000

0.000

(0.17)(0.96)(0.57)(1.63)(1.58)(0.86)(0.77)(1.96)**(1.22)

0.305

0.278

0.328

0.291

0.277

0.302

0.292

0.294

0.285

(1.96)(1.78)(2.08)**(1.87)(1.78)(1.93)(1.87)(1.88)(1.82)

Failure of Ashikaga Bank（December 1, 2003）
Cond

TA

SH

Number of observations
Number of banks-0.138-0.038-0.0030.338-0.050-0.0300.012-0.069-0.100(3.32)***(4.02)***(0.13)(4.90)***(2.55)**(4.73)***(0.52)(0.62)(0.44)-0.002-0.001-0.001-0.002

0.000

0.001

-0.0010.000-0.001(0.89)(0.74)(0.46)(1.29)(0.21)(0.31)(0.35)(0.13)(0.42)-1.932-2.223-1.965-1.902-1.952-1.647-2.077-1.984-1.970(3.69)***(4.23)***(3.75)***(3.64)***(3.70)***(3.13)***(3.80)***(3.78)***(3.77)***

24560

24560

24560

24560

24560

24560

24560

24560

24560

80

80

80

80

80

80

80

80

80

Notes: *** and ** indicate significance at the 1% and 5% levels, respectively.