DEREGULATION, FINANCIAL CRISIS, AND BANK EFFICIENCY IN TAIWAN: AN ESTIMATION OF UNDESIRABLE OUTPUTS

Year 2018, Volume: 7 Issue: 1, 17 - 29, 30.03.2018

Chang-sheng Liao

https://doi.org/10.17261/Pressacademia.2018.792

Abstract

Purpose- This study investigates the undesirable impacts of outputs
on bank efficiency and contributes to the literature by assessing how
regulation policies and other events impact bank efficiency in Taiwan in
regards to deregulation, financial crisis, and financial reform from 1993 to
2011.

Methodology- In order to effectively deal with both undesirable
and desirable outputs, this study follows Seiford and Zhu (2002), who recommend
using the standard data envelopment analysis model to measure performance by
increasing the desirable outputs and decreasing the undesirables.

Findings- Empirical findings indicate that bank efficiency with
undesirable outputs is more prevalent than bank efficiency without undesirable
outputs, which implies that undesirable outputs play a key role in hampering
bank efficiency. This study result show that the effect of deregulation on bank
efficiency decreased during the initial financial reform period. Nevertheless,
our empirical evidence shows that financial reform significantly improved bank
efficiency in emerging countries in the long run.

Conclusion- First, in accounting for both desirable and undesirable output while
evaluating and analyzing bank efficiency, it assumes that undesirable outputs
operate as non-performing loans and offers a comparison of different results
from perspectives that either consider undesirable output within the classical DEA model or do not. The second
contribution stems from the fact that the processes of rapid growth and recovery
in recent years have given emerging Asian countries undoubtedly key roles in
world economics, and studies have responded by analysing data of emerging Asian
countries, such as Taiwan. Thirdly, this study contributes to the literature by
assessing how regulation policies and other events impact bank efficiency in
Taiwan in regards to deregulation, financial crisis, and financial reform.   

Keywords

Undesirable outputs, deregulation, financial crisis, data envelopment analysis, banks efficiency

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