Econometric analysis of the behavior of the Japanese insurance firms in the 1980's - Research on corporate strategies in the Bubble Economy -

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Using the panel data of major nineteen Japanese non-life insurance firms during 1969 - 1998, the simultaneous-equation model which consists of the translog cost function and the share-equations was estimated by maximum-likelihood method and cost inefficiencies were calculated. These inefficiencies were adjusted to make them consistent statistically. The adjusted inefficiencies were transformed into eleven ranks. Thus we have 570 ranks in terms of cost inefficiency of the nineteen firms during 1969 - 1998.Qualitative-dependent-variable models were considered for the analysis of the rank data, and we picked up an ordered-probability model for this purpose. Four exogeneous variables were selected to capture the variation in ranks. They are surplus, insurance premium, interest rate, and total assets. From the results of the estimation of the model, it was observed that both surplus and insurance premium have a positive effect on the ranks, i.e., if the amount of surplus or insurance premium increases, cost inefficiencies tend to decrease. It was also found that lower interest rates tend to increase cost inefficiencies. This finding is quite understandable because the extremely low interest rates after the collapse of the bubble economy caused damage to the insurance firms. However, total assets have a negative impact and larger firms tend to be less efficient.