Reform of Governance in Cooperative Financial Institutions: The scale of shinkin banks' boards of directors and management performance

Strengthening the governance of financial institutions has become a major issue in recent years. For example, debates on acquisition pressure and the system of appointing external directors regarding joint-stock companies can apply to banks that have adopted the joint-stock company system, but the same is not true of shinkin banks, which are cooperative financial institutions. In this paper we focus on the shinkin bank board of directors, the core entity for conduct of business by shinkin banks and business oversight functions. Specifically, we analyze the factors that determine the scale of the boards of directors of shinkin banks and the relationship between the scale of those boards and the banks' management performance. As regards the former, we confirm that the larger the scale of a shinkin bank's assets, the larger its board of directors tends to be. We also confirm, however, that compared with the number of employees, the number of directors has a weak correlation with the scale of shinkin banks' assets, and factors other than asset scale play a considerable role in determining the number of directors. In regard to the latter, we find that, unlike previous research conducted on joint-stock companies, it is not possible to discern any clear correlation between board scale and management performance.