IDEAS home Printed from https://ideas.repec.org/a/bla/coecpo/v37y2019i1p195-209.html
   My bibliography  Save this article

Is Full Efficiency Achievable? An Empirical Study Of The Banking Industry In Taiwan

Author

Listed:
  • Ku‐Hsieh Chen
  • Jen‐Chi Cheng
  • Joe‐Ming Lee
  • Ching‐Fang Chi

Abstract

This paper aims to propose a feasible framework for estimating the efficiency of input factors for banks and the adjustment of these factors necessary to achieve full efficiency in the short and long term. Based on a sample of 39 Taiwanese banks during 1999–2011, the framework recommends a scheme along with a set of adjustments empirically that allow the banks to not only achieve full efficiency but also save 10.3% of the total costs in the short term and 8.8% in the long term. This scheme amounts to short‐term and long‐term savings of NT$3.6 billion and NT$3.1 billion, respectively. (JEL C23, D24, G21)

Suggested Citation

  • Ku‐Hsieh Chen & Jen‐Chi Cheng & Joe‐Ming Lee & Ching‐Fang Chi, 2019. "Is Full Efficiency Achievable? An Empirical Study Of The Banking Industry In Taiwan," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 195-209, January.
    • Handle: RePEc:bla:coecpo:v:37:y:2019:i:1:p:195-209
    DOI: 10.1111/coep.12412
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/coep.12412
    Download Restriction: no
    File URL: https://libkey.io/10.1111/coep.12412?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Drake, Leigh & Hall, Maximilian J.B. & Simper, Richard, 2006. "The impact of macroeconomic and regulatory factors on bank efficiency: A non-parametric analysis of Hong Kong's banking system," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1443-1466, May.
    2. Mester, Loretta J., 1996. "A study of bank efficiency taking into account risk-preferences," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1025-1045, July.
    3. Yildirim, H. Semih & Philippatos, George C., 2007. "Restructuring, consolidation and competition in Latin American banking markets," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 629-639, March.
    4. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-456, June.
    5. Chunhachinda, Pornchai & Dandapani, Krishnan & Hamid, Shahid & Prakash, Arun J., 1997. "Portfolio selection and skewness: Evidence from international stock markets," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 143-167, February.
    6. Haggag, A. A., 1981. "A variant of the generalized reduced gradient algorithm for non-linear programming and its applications," European Journal of Operational Research, Elsevier, vol. 7(2), pages 161-168, June.
    7. Berger, Allen N. & Mester, Loretta J., 1997. "Inside the black box: What explains differences in the efficiencies of financial institutions?," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 895-947, July.
    8. Chen, Ku-Hsieh, 2012. "Incorporating risk input into the analysis of bank productivity: Application to the Taiwanese banking industry," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 1911-1927.
    9. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    10. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Ku-Hsieh, 2012. "Incorporating risk input into the analysis of bank productivity: Application to the Taiwanese banking industry," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 1911-1927.
    2. Barros, Carlos Pestana & Williams, Jonathan, 2013. "The random parameters stochastic frontier cost function and the effectiveness of public policy: Evidence from bank restructuring in Mexico," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 98-108.
    3. Williams, Jonathan, 2004. "Determining management behaviour in European banking," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2427-2460, October.
    4. Головань С.В. & Назин В.В. & Пересецкий А.А., 2010. "Непараметрические Оценки Эффективности Российских Банков," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 46(3), июль.
    5. Gulati, Rachita, 2022. "Global and local banking crises and risk-adjusted efficiency of Indian banks: Are the impacts really perspective-dependent?," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 23-39.
    6. Silva, Thiago Christiano & Tabak, Benjamin Miranda & Cajueiro, Daniel Oliveira & Dias, Marina Villas Boas, 2017. "A comparison of DEA and SFA using micro- and macro-level perspectives: Efficiency of Chinese local banks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 469(C), pages 216-223.
    7. Adnan Kasman & Canan Yildirim, 2006. "Cost and profit efficiencies in transition banking: the case of new EU members," Applied Economics, Taylor & Francis Journals, vol. 38(9), pages 1079-1090.
    8. Silva, Thiago Christiano & Tabak, Benjamin Miranda & Cajueiro, Daniel Oliveira & Dias, Marina Villas Boas, 2018. "Adequacy of deterministic and parametric frontiers to analyze the efficiency of Indian commercial banks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 506(C), pages 1016-1025.
    9. Manlagnit, Maria Chelo V., 2015. "Basel regulations and banks’ efficiency: The case of the Philippines," Journal of Asian Economics, Elsevier, vol. 39(C), pages 72-85.
    10. Williams, Jonathan & Nguyen, Nghia, 2005. "Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2119-2154, August.
    11. Franz R. Hahn, 2005. "Determinants of Bank Profitability in Austria. A Micro-Macro Approach," WIFO Studies, WIFO, number 25688, April.
    12. Zuzana Irsova & Tomas Havranek, 2011. "Bank Efficiency in Transitional Countries: Sensitivity to Stochastic Frontier Design," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 18(2), pages 230-270, December.
    13. Hakan Güneş & Dilem Yıldırım, 2016. "Estimating Cost Efficiency of Turkish Commercial Banks under Unobserved Heterogeneity with Stochastic Frontier Models," ERC Working Papers 1603, ERC - Economic Research Center, Middle East Technical University, revised Mar 2016.
    14. Beccalli, Elena, 2004. "Cross-country comparisons of efficiency: Evidence from the UK and Italian investment firms," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1363-1383, June.
    15. repec:onb:oenbwp:y::i:96:b:1 is not listed on IDEAS
    16. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    17. 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.
    18. Goddard, John & Molyneux, Philip & Williams, Jonathan, 2014. "Dealing with cross-firm heterogeneity in bank efficiency estimates: Some evidence from Latin America," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 130-142.
    19. Safiullah, Md, 2020. "Bank governance and crisis-period efficiency: A multinational study on Islamic and conventional banks," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    20. Anwar Al-Gasaymeh, 2020. "Economic Freedom, Country Risk and Cost Efficiency in Jordan and the GCC Countries," Global Business Review, International Management Institute, vol. 21(1), pages 1-17, February.
    21. Chiu, Yung-Ho & Chen, Yu-Chuan, 2009. "The analysis of Taiwanese bank efficiency: Incorporating both external environment risk and internal risk," Economic Modelling, Elsevier, vol. 26(2), pages 456-463, March.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:coecpo:v:37:y:2019:i:1:p:195-209. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/weaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.