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Efficiency and capital adequacy in Taiwan banking: BCC and super-DEA estimation

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  • Yung-Ho Chiu
  • Chyanlong Jan
  • Da-Bai Shen
  • Pen-Chun Wang

Abstract

In this study the researchers adopt two DEA methods -- Banker-Charnes-Cooper and Super Efficiency -- to investigate whether a bank's technical efficiency is significantly different when capital adequacy (risk) is specified compared with when capital adequacy (risk) is not specified. The information is obtained from 46 Taiwanese banks for the period 2000 to 2002. The Malmquist total factor productivity (TFP) index is employed to measure the impact of productivity change on the panel data. The empirical results from the DEA approach are summarized as follows: (1) Capital adequacy is proven to be an influential factor in evaluating the efficiency of banks. (2) The average efficiency scores of banks with high capital adequacy (>8%) are significantly higher than those of banks with lower capital adequacy (>8%). (3) The efficiency scores of banks with high risk capital requirement (above the average) are higher than those of banks with lower risk capital requirement (under the average). (4) Banks with both high capital adequacy and high risk capital requirement are superior in performance than all the other banks, while banks with both low capital adequacy and low-risk capital requirement performance are the worst by contrast. (5) Based on the Malmquist total TFP index, we find that bank productivity has not increased.

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  • Yung-Ho Chiu & Chyanlong Jan & Da-Bai Shen & Pen-Chun Wang, 2008. "Efficiency and capital adequacy in Taiwan banking: BCC and super-DEA estimation," The Service Industries Journal, Taylor & Francis Journals, vol. 28(4), pages 479-496, May.
    • Handle: RePEc:taf:servic:v:28:y:2008:i:4:p:479-496
    DOI: 10.1080/02642060801917604
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    6. 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.
    7. Changjun Zheng & Anupam Das Gupta & Syed Moudud-Ul-Huq, 2017. "Do market competition and development indicators matter for banks’ risk, capital, and efficiency relationship?," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(02n03), pages 1-27, June.
    8. Gabriel A. Ogunmola & Fengsheng Chien & Ka Yin Chau & Li Li, 2022. "The Influence of Capital Requirement of Basel III Adoption on Banks’ Operating Efficiency: Evidence from U.S. Banks," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(2), pages 5-26.
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    13. 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.
    14. Guglielmo Maria Caporale & Carlos Pestana Barros, 2013. "Banking Consolidation in Nigeria, 2000-2010," NCID Working Papers 07/2013, Navarra Center for International Development, University of Navarra.
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