A Study On The Operating Efficiency Of Banks Under Financial Holding Company In Taiwan

This main purpose of this thesis is to study whether the establishment of financial holding company establishment in Taiwan has changed the operating efficiency of its banking industry or not. Under consideration of intermediation approach, a cost function and a profit function are used and data envelope analysis(DEA) and stochastic frontier approach(SFA) respectively are adopted to measure operating efficiency. Data is from financial statements of subordinated banks of the 14 financial holding companies from 1999 to 2004. In addition, we compare difference of the operating efficiency before and after the establishment of financial holding company, i.e., 1999-2001 vs. 2002-2004.The following empirical results are found. (1)According to analysis of individual bank time series data, cost efficiency measurement by DEA shows only 7 banks of 14 banks is a little improved. But the change in cost efficiency measurement for all 14 banks is not significant under 95% or even 90% significance level. In addition, profit efficiency measurement by SFA with 5% truncation shows 8 banks of 14 banks is a little improved; 10% truncation shows only 6 banks of 14 banks is a little improved. However, the change in profit efficiency measurement for all 14 banks is not significant under 95% or even 90 % significance level. (2) According to analysis of panel data, the changes in efficiency measurements, no matter what cost efficiency by DEA or profit efficiency by SFA is, are not significant under 95% or even 90% significance level.