Social capital and the business models of financial cooperatives: evidence from Japanese Shinkin banks

We investigate the link between social capital and business model choice of financial cooperatives (Shinkin banks) in Japan. We identify two forms of business model, which concentrate on the issuance of loans funded by deposits (traditional) and the investment and management of large investment portfolios (new). Traditional business models are more likely to emerge in geographic areas with higher levels of social capital. These findings are robust after controlling for bank‐ and prefecture‐level characteristics (such as unemployment, population and income) that may influence bank business model choice. We repeat our analysis for a sample of shareholder‐oriented (regional) banks, but fail to establish any relationship between social capital and this organisational form. Overall, our findings suggest that financial cooperatives in high‐social‐capital areas are more likely to adhere to a traditional model of financial intermediation focused on lending which promotes community and economic development.