We would like to thank an anonymous referee, the associate editor, and especially Sudipto Dasgupta (the editor) for their comments and suggestions that greatly improved the paper. We also would like to thank the National Science Council of Taiwan for the financial support.
Do Financial Reforms Improve the Performance of Financial Holding Companies? The Case of Taiwan†
Article first published online: 5 DEC 2012
© 2012 The Authors. International Review of Finance © International Review of Finance Ltd. 2012
International Review of Finance
Volume 12, Issue 4, pages 491–509, December 2012
How to Cite
Kao, M.-C., Lin, C.-T. and Xu, L. (2012), Do Financial Reforms Improve the Performance of Financial Holding Companies? The Case of Taiwan. International Review of Finance, 12: 491–509. doi: 10.1111/j.1468-2443.2012.01161.x
- Issue published online: 5 DEC 2012
- Article first published online: 5 DEC 2012
- National Science Council of Taiwan
We examine the performance of financial holding companies (FHCs) in Taiwan after the financial reform that removes the separation of banking, securities, insurance, and other financial services. Using data envelopment analysis, we find that FHCs fail to improve technical efficiencies in the post-reform era. They also do not outperform independent commercial banks after the financial reform. Lower technical efficiency caused by excess operating expenses appears to be the primary source of inefficiency. While scale efficiency may improve as FHCs grow larger, the benefits are marginal and insufficient to offset the potential costs of organizational diseconomies. Our findings suggest that increasing the size and scope of financial activities alone do not necessarily improve the performance of financial firms.