Onji, KazukiVera, DavidCorbett, Jennifer2015-12-100889-1583http://hdl.handle.net/1885/67187A case study of the Japanese bank recapitalization by Hoshi and Kashyap (2005) identified a bank that overstated the progress of required personnel downsizing by shifting employees to subsidiaries. This paper asks if the recapitalization program had a design flaw. We focus on regional banks with a unique panel dataset of 81 banking groups that allows us to observe the employment levels of subsidiaries, in addition to those of parent banks, over fiscal 1994-2006. We estimate a labor-demand equation with sluggish adjustment to compare the employment patterns of public capital recipients and other banks. The result indicates that the shuffling of personnel to subsidiaries was a common response among banks that received large capital injections. Our finding highlights a tension between a reconstruction program and labor law when a country has a tight law on dismissal.Keywords: Employee downsizing; Recapitalization program201210.1016/j.jjie.2012.08.0022016-02-24