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Balanced Performance Index and Its Implications: Evidence from Taiwan's Commercial Banks

Author

Listed:
  • Dar-Yeh Hwang

    (Department of Finance, College of Management, National Taiwan University, Taipei, Taiwan)

  • Alice C. Lee

    (Finance Department, San Francisco State University, USA)

  • Chi-Chun Liu

    (Department of Accounting, College of Management, National Taiwan University, Taipei, Taiwan)

  • Lishu Ouyang

    (Department of Economics, College of Management, Chinese Culture University, Taipei, Taiwan)

Abstract

Taking into account only financial factors does not provide complete information on performance. This paper takes into consideration of both financial and non-financial performances when evaluating 35 sampled publicly traded commercial banks in Taiwan. The performance of banks is measured using an indexing method consisting of financial and non-financial measures. Banks are classified into two categories according either to the year founded, or to the type of major stockholders of a bank when founded.The results show that privatized government-owned/old banks are larger than private/new banks, respectively. Moreover, privatized government-owned banks have significantly higher financial performance index than private banks but both types of banks are not significantly different from each other in non-financial performance index. New and old banks are not significantly different from each other in both financial and non-financial performance indexes.With relatively large scale, higher profitability and better management, banks will perform relatively better among competitors in the following year. Furthermore, non-financial factors are important predictors of future financial and total performance indexes, though individual factor may not be consistently significant.More branch offices, better capital structure and solvency, and higher rates of growth in deposits and loans all result in more profits, and lead to higher customer satisfaction and more efficient management. Providing better technology to customers is an efficient way in promoting customer services, which in turn produces more profits and results in efficient management. CEOs, on average, have plans for better management and more profits.Among the factors that have direct and positive impacts on profitability, increasing the efficiency of management is the most efficient way. On the contrary, adding more branch offices contributes the least profits. Therefore, to increase bank profits, CEOs should aim to improve bank management, capital structure and solvency, rather than to add more branch offices.

Suggested Citation

  • Dar-Yeh Hwang & Alice C. Lee & Chi-Chun Liu & Lishu Ouyang, 2009. "Balanced Performance Index and Its Implications: Evidence from Taiwan's Commercial Banks," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 12(01), pages 27-62.
    • Handle: RePEc:wsi:rpbfmp:v:12:y:2009:i:01:n:s0219091509001538
    DOI: 10.1142/S0219091509001538
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    References listed on IDEAS

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    1. Mark Doms & John Krainer, 2007. "Innovations in mortgage markets and increased spending on housing," Working Paper Series 2007-05, Federal Reserve Bank of San Francisco.
    2. repec:bla:ausecp:v:40:y:2001:i:2:p:213-31 is not listed on IDEAS
    3. Tai‐Hsin Huang & Mei‐Hui Wang, 2001. "Estimating Scale and Scope Economies with Fourier Flexible Functional Form – Evidence from Taiwan's Banking Industry," Australian Economic Papers, Wiley Blackwell, vol. 40(2), pages 213-231, June.
    Full references (including those not matched with items on IDEAS)

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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. 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.
    3. Mohamed Wail Aaminou & Rajae Aboulaich, 2017. "Modeling Consumers’ Behavior in New Dual Banking Markets: The Case of Morocco," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(02), pages 1-24, June.

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    More about this item

    Keywords

    Balanced performance measures; performance indexing approach; privatized government-owned bank; CEO leadership; JEL Classification: G21; JEL Classification: G28; JEL Classification: C12;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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