Financial sector consolidation events and post-consolidation performance results: Evidence from Taiwan banking industry

Passage of the Act of Financial Holding Company made it possible to create multifunctional financial conglomerates in Taiwan. The analysis of my dissertation focuses on Taiwanese banking consolidations and is grounded in the role of managerial capability emphasized by transaction cost economics and the resource-based view of the firm. The process of resource acquisition and integration requires two distinct capabilities: first, the capability to perceive the resource combination potentials from external markets; second, the capability to actually carry out the resource integration in internal markets.; By using the event study method, I examine whether investors in the capital market appreciate managerial perceptions of value-enhancing consolidation. Second, I evaluate changes in accounting performance to examine managerial capability actually carrying out resource integration and to examine the effect of consolidation with various financial service companies on operating performance.; This study finds incomplete evidence that investors in Taiwan capital market prefer consolidations between financial holding companies and commercial banks. In addition, the study reveals that investors do not consider consolidations with insurance companies or securities companies as value-enhancing.; The sample banks improve their performance on ROE. However, the management of the sample banks does not efficiently use their assets after consolidations. The consolidated banks improve their capital adequacy during the post-consolidation period. This suggests that the consolidated banks appear to have more ability to attract deposits and that the banks make fuller use of their lending capability after consolidation. The decrease of assets-to-employees implies that employee productivity decreases. The increase of loans-to-assets shows that the consolidated banks can attract more loans. Consolidating with insurance companies has a positive impact on generating interest income from loans.; Additionally, the evidence shows that more small banks improve their performance on efficiency, growth and interest-rate risk indicators. More large banks improve their performance only on profitability, credit quality, liquidity risk and capital adequacy indicators.