Financial Deregulations, Conflict of Interest and Banking Crisis in Japan: A Decision-theoretic-GARCH Approach to Analyze the Management Behavior

摘要

This paper proposes an empirical model framework to analyze the management behavior that is crucial at the outset of financial deregulations and/or crisis. In a learning model setting, the proposed framework shows that management efficiency is a function of conditional hateroschedasticity of profitability (productivity), and it can be estimated by the GARCH model of Bollerslev (1986). Application of the GARCH model in analyzing management behavior enables to consider information theory explicitly, and it has been found effective in explaining causality of the Japanese banking crisis. Moreover, the paper also shows how to explain the sources of variations in the behavior of the bank management.