The Influence of Financilal Liberalization on Taiwan Ten Big Banks'' Operating Environment and Performance

• Main Authors: I-Hsiung Wu, 吳義雄
• Other Authors: Jwu -Rong Lin
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/80417925906170402708

碩士 === 東海大學 === 國際貿易學系 === 92 === This paper first examines the changes of both operating environment and performance of the ten biggest government owned banks during the period of 1981 to 2001, and then evaluates the influence of Taiwan financial liberalization on their operating performance. Based on the selection of likelihood ratio tests, we construct half-normal distributed translog stochastic frontier cost function to estimate the annual cost efficiencies of all sample banks. Then, we use the estimates obtaining from translog stochastic frontier cost function to estimate cost complements, economies of scale, economies of scope, and technique progress. Finally, using cost efficiency and return on equity (ROE) as dependent variables and inbound and outbound financial environment variables as independent variables, we apply cross-sectional heteroskedasticity and time-wise autoregressive model to estimate the influence of financial liberalization on sample banks. Our findings are: 1. In the financial liberalization aspect, the results of Model I (using dummy variable as the proxy of financial liberalization) show that financial liberalization (after 1992) had negative impacts on cost inefficiency and ROE. In the Model II, we apply the market shares of individual banks and market concentrations of the sample banks as the proxy of liberalization to study the impact of liberalization on operating performance of the ten biggest banks. The results show that the market concentration has positive impact on the cost inefficiency, and the market share and concentration ratio also have positive influence on ROE. The above findings indicate that after the financial liberalization, the declining market share and shrinking market concentration cause cost inefficiency and ROE ratio to decrease. In addition, there is no explicit collusion among the ten biggest banks. 2. In the aspect of output, the revenues of nontraditional activities increase significantly, and its percentage chang is much greater than the change of revenue from investment activities. This finding confirms that it is necessary to take nontraditional activity income into account when calculating the banks’ outputs. 3. Based on the operating performance of the sample banks, we find: (1) the average value of the cost efficiency of the sample banks is 1.467, which is statistically significantly greater than one and indicates that the sample banks need to take measures to improve their cost inefficiencies. (2) The average ROE ratio of the sample banks is 0.158. Moreover, the average ROE after financial liberalization is smaller than that before liberalization. 4. As to output characteristics, we find: (1) the average impact rate of branch number on cost efficiency is 0.026, indicating that the cost would rise 0.026% for every 1% increases in the number of branches. (2) the average elasticity of economies of scale and augmented economies of scale are 0.701 and 0.738, respectively, and both are significantly less than one. This implies that the sample banks still have capacity to enlarge their operating scales. (3) the average economy of scope is 0.878, and is significantly greater than 0. This indicates that the sample banks can reduce operating costs by diversifying their operating activities. (4) the average technique progress rate of sample banks is —0.055 and is significantly less than zero, indicating the highly competitive operating environment did not make the ten biggist banks improve their technique progress.