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The Approach for Estimating Cost Growth Rates in the Taiwanese Banking Industry

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  • Yung-Lieh Yang

    (Department of Finance, Ling Tung University, Taiwan)

Abstract

The most present articles adopted the output-oriented Malmquist productivity index (OM) for estimating the production efficiency and productivity of Bank. Based on the method of Yang and Lee (2009), the research provides the new way to discuss cost efficiency and cost growth rate of Taiwanese banking industry during 1995 to 2005. The cost growth rate was decomposed into five components: technical efficiency change, allocation efficiency change, technical structure change, input price change and output scale change. Empirical results indicate 7.87% cost growth rates decline in the banking industry. Then we apply the random-effects Tobit panel data regression analysis to investigate the determinant effects in terms of the cost efficiency and cost growth rates for these banks. The results show that the average scale of these banks is larger than optimal scale. It means that the increase of banks' scale has positive relationship to cost efficiency and allocation efficiency. The index of cost efficiency is significantly improved by the decrease of Non-Performing Loan. At least, system generalized method of moment dynamic panel model results indicate that the cost growth rate of Taiwanese banks exhibits significant positive persistence.

Suggested Citation

  • Yung-Lieh Yang, 2010. "The Approach for Estimating Cost Growth Rates in the Taiwanese Banking Industry," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 6(1), pages 79-111, January.
    • Handle: RePEc:jec:journl:v:6:y:2010:i:1:p:79-111
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    More about this item

    Keywords

    banking sector; data envelopment analysis; malmquist index; cost growth rate;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other

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