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A study on profitability and marketability of Taiwanese bank firms before and after the Financial Holding Company Act

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  • Dauw-Song Zhu
  • Yi-Kang Chen
  • Louis P. White

Abstract

The purpose of this paper is to determine whether the subordinate subsidiary to a financial institution can improve the operating performance by establishing financial holding companies (FHCs) in Taiwan. Current research uses data envelopment analysis (DEA) to measure profitability and marketability changes among 14 banks with subsidiaries as FHCs. The DEA models include the CCR and BCC models, both of which analyse the overall efficiency, technical efficiency, and scale efficiency of banks. We used the bilateral model to measure and compare differences in operating performance before and after implementation of the FHC Act. Results show that except for scale efficiency of profitability, other efficiencies of banks do not improved because of their conglomerate in FHCs; however, inefficiency occurs primarily on scale which is derived from diseconomies of scale. Contrary to the purpose with FHC, the efficiency scores of 2003-2007 were lower than those of 1997-2001. The bilateral model shows that prior to the implementation of the FHC Act, banks demonstrated higher levels of efficiency than banks with FHCs subsidiary. Management implications for the Taiwanese banking industry are discussed.

Suggested Citation

  • Dauw-Song Zhu & Yi-Kang Chen & Louis P. White, 2014. "A study on profitability and marketability of Taiwanese bank firms before and after the Financial Holding Company Act," International Journal of Business Performance Management, Inderscience Enterprises Ltd, vol. 15(3), pages 207-228.
    • Handle: RePEc:ids:ijbpma:v:15:y:2014:i:3:p:207-228
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    Citations

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    Cited by:

    1. Chuang-Min Chao & Ming-Miin Yu & Nan-Hsing Hsiung & Li-Hsueh Chen, 2018. "Profitability efficiency, marketability efficiency and technology gaps in Taiwan’s banking industry: meta-frontier network data envelopment analysis," Applied Economics, Taylor & Francis Journals, vol. 50(3), pages 233-250, January.
    2. Ying Li & Yung‐ho Chiu & Ying Yu Chen & Lihua Wang & Yi‐Nuo Lin & Su‐Wan Wang, 2022. "The impact of market share on efficiency of commercial banks: Resampling slacks‐based measure data envelopment analyses model," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1621-1634, July.
    3. Yung‐ho Chiu & Tai‐Yu Lin & Tzu‐Han Chang & Yi‐Nuo Lin & Shih‐Yung Chiu, 2021. "Prevaluating efficiency gains from potential mergers and acquisitions in the financial industry with the Resample Past–Present–Future data envelopment analysis approach," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(2), pages 369-384, March.

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