Banks restructuring sonata: How capital injection triggered labor force rejuvenation in Japanese banks

Divergent interests of bank managers and financial regulators potentially compromise the efficacy of bank rescue operations. This paper analyses an agency problem encountered in a capital injection program implemented in Japan. We hypothesize that the operationfs requirement to downsize lead banks to overstate the extent of downsizing by reassigning older workers to bank subsidiaries. We implement a difference-in-difference analysis using a panel of Japanese banks from 1990 through 2010. We also employ propensity score matching to control for the sample selection. The result shows that recipients of public capital exhibited workforce rejuvenation relative to non-recipient banks. Among injected banks, average worker age falls by approximately one year, which is equivalent to about seventy less 65-years-old workers. On stand-alone basis, the number of employees in injected banks decreases as a response to injection, but on consolidated basis, which accounts for subsidiary employment, the number of employees at banking does not fall. Our finding suggests that the Japanese practice of life-time employment survived, albeit in a limited form, among restructuring banks.