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Shao-Yin Hsu
Department of Economics, Soochow University
Address: 56, Kueiyang St., Sec. 1, Taipei, 100, Taiwan (R.O.C.)
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

Ching-Cheng Lu
Department of Applied Economics, Fo Guang University, Taiwan
Address: No. 160, Linwei Rd., Jiaosi, Yilan 26247, Taiwan (R.O.C.)
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

Kuo-Wei Chou
Department of Applied Economics, Fo Guang University, Taiwan
Address: 160 Linwei Road, Jiaosi, Yilan 26247, Taiwan (R.O.C.)
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

Yung-ho Chiu
Department of Economics, Soochow University
Address: 56, Kueiyang St., Sec. 1, Taipei, Taiwan 10048, Taiwan (R.O.C.)
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.; Tel.: +886-2-23111531 ext. 5201, Fax: +886-2-27976015.

Abstract
In order to become a member of WTO, Taiwan first passed the Financial Holding Company Act (FHCA) in 2001 to implement reform in the financial system and enhance the global competitiveness of domestic financial institutions. This study divided 33 banks into two groups based on whether they belong to financial or non-financial holding companies. Using a dynamic DEA model, we compared the operating efficiency of the two groups and then compared the operating efficiency of the 33 banks individually. The most significant difference between this study and existing literature is that this study encompasses an M&A boom and global economic crises during its fifteen-year-long study period. Furthermore, we screened carry-over as link variables using Cross Correlation periods Lag 1 and Lag 2, and our study model provides an optimal efficiency evaluation standard. The empirical results indicate that (1) The average operating efficiency of banks under financial holding companies paralleled rather than exceeded that of banks under non-financial holding companies in 2016. (2) The average capital of banks in Taiwan was already very close to the optimal projected capital; equity turnover was low due to underutilized capital. We also examined the low efficiency indicators of input and output in our study. (3) Cash capital increase presented the operating efficiency of small banks (under non-financial holding companies) more clearly than mergers. (4) Bank mergers in Taiwan did not induce restrictive competition; the mergers of smaller banks with poor efficiency under non- financial holding companies created inefficiency and should be controlled. The results of this study provide the competent authority of competition law with reference for law and regulation development.

Keywords: Finance, Banking, efficiency, dynamic DEA, carry-over, Competition law, Merger

 

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