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Affecting Factors On Risk‐Adjusted Efficiency In Taiwan'S Banking Industry

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  • TA‐CHENG CHANG
  • YUNG‐HO CHIU

Abstract

This study adopts a two‐stage approach, data envelopment analysis (DEA) and tobit regression, to investigate the bank efficiency index and efficiency effect incorporated into account credit and market risk. The authors use the DEA method in the first stage to estimate bank cost efficiency, and the tobit regression model in the second stage to estimate efficiency effects. The empirical results are summarized as follows: First, results indicate that risk factors impact bank efficiency. Banks with a higher degree of nonperforming loans or value at risk will see efficiency decrease by incorporating account risk. Second, there is no significant difference with the bank efficiency index taking only credit risk or market risk into consideration, but there are significant differences on the bank efficiency index in situations without risk or with credit and/or market risks. Finally, the study notes that different bank efficiency indexes calculated according to different risks are affected by different factors. (JEL G1, G21)

Suggested Citation

  • Ta‐Cheng Chang & Yung‐Ho Chiu, 2006. "Affecting Factors On Risk‐Adjusted Efficiency In Taiwan'S Banking Industry," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 634-648, October.
    • Handle: RePEc:bla:coecpo:v:24:y:2006:i:4:p:634-648
    DOI: 10.1093/cep/byl008
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    6. Ariff, Mohamed & Can, Luc, 2008. "Cost and profit efficiency of Chinese banks: A non-parametric analysis," China Economic Review, Elsevier, vol. 19(2), pages 260-273, June.
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    9. Le, Minh & Hoang, Viet-Ngu & Wilson, Clevo & Managi, Shunsuke, 2020. "Net stable funding ratio and profit efficiency of commercial banks in the US," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 55-66.
    10. Li-Hua Lai & Li-Chin Hung & Chau-Jung Kuo, 2016. "Do Well-Financial Holding Company Organized Banks in Taiwan Take More Risk?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-30, December.
    11. Tan, Yong & Anchor, John, 2017. "The impacts of risk-taking behaviour and competition on technical efficiency: Evidence from the Chinese banking industry," Research in International Business and Finance, Elsevier, vol. 41(C), pages 90-104.
    12. Syedah Shan E Ahmad, 2015. "Microfinance during Financial Crisis: Evidence from Bangladesh," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(6), pages 262-270, June.
    13. Ha Thu Vu & Sean Turnell, 2010. "Cost Efficiency of the Banking Sector in Vietnam: A Bayesian Stochastic Frontier Approach with Regularity Constraints," Asian Economic Journal, East Asian Economic Association, vol. 24(2), pages 115-139, June.
    14. Mehdi Fallah Jelodar, 2016. "Prioritization of the Factors Affecting Bank Efficiency Using Combined Data Envelopment Analysis and Analytical Hierarchy Process Methods," Journal of Optimization, Hindawi, vol. 2016, pages 1-7, May.
    15. Manlagñit, Maria Chelo V., 2011. "Cost efficiency, determinants, and risk preferences in banking: A case of stochastic frontier analysis in the Philippines," Journal of Asian Economics, Elsevier, vol. 22(1), pages 23-35, February.
    16. Juo, Jia-Ching & Fu, Tsu-Tan & Yu, Ming-Miin, 2012. "Non-oriented slack-based decompositions of profit change with an application to Taiwanese banking," Omega, Elsevier, vol. 40(5), pages 550-561.
    17. Chiu, Yung-ho & Luo, Zhengying & Chen, Yu-Chuan & Wang, Zebin & Tsai, Min-Pei, 2013. "A comparison of operating performance management between Taiwan banks and foreign banks based on the Meta-Hybrid DEA model," Economic Modelling, Elsevier, vol. 33(C), pages 433-439.
    18. Chien-Ming Huang & Wei Yang & Ren-Qing Zeng, 2020. "Analysis on the Efficiency of Risk Management in the Chinese Listed Companies," Mathematics, MDPI, vol. 8(10), pages 1-13, October.
    19. Chen, Yu-Chuan & Chiu, Yung-Ho & Huang, Chin-Wei & Tu, Chien Heng, 2013. "The analysis of bank business performance and market risk—Applying Fuzzy DEA," Economic Modelling, Elsevier, vol. 32(C), pages 225-232.
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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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