DEREGULATION, FINANCIAL CRISIS, AND BANK EFFICIENCY IN TAIWAN: AN ESTIMATION OF UNDESIRABLE OUTPUTS
- Publisher: PressAcademia
(issn: 2146-7943, eissn: 2146-7943)
Undesirable outputs,deregulation,financial crisis,data envelopment analysis,banks efficiency
Purpose- This study investigates the undesirable impacts of outputson bank efficiency and contributes to the literature by assessing howregulation policies and other events impact bank efficiency in Taiwan inregards to deregulation, financial crisis, and financial reform from 1993 to2011. Methodology- In order to effectively deal with both undesirableand desirable outputs, this study follows Seiford and Zhu (2002), who recommendusing the standard data envelopment analysis model to measure performance byincreasing the desirable outputs and decreasing the undesirables. Findings- Empirical findings indicate that bank efficiency withundesirable outputs is more prevalent than bank efficiency without undesirableoutputs, which implies that undesirable outputs play a key role in hamperingbank efficiency. This study result show that the effect of deregulation on bankefficiency decreased during the initial financial reform period. Nevertheless,our empirical evidence shows that financial reform significantly improved bankefficiency in emerging countries in the long run. Conclusion- First, in accounting for both desirable and undesirable output whileevaluating and analyzing bank efficiency, it assumes that undesirable outputsoperate as non-performing loans and offers a comparison of different resultsfrom perspectives that either consider undesirable output within the classical DEA model or do not. The secondcontribution stems from the fact that the processes of rapid growth and recoveryin recent years have given emerging Asian countries undoubtedly key roles inworld economics, and studies have responded by analysing data of emerging Asiancountries, such as Taiwan. Thirdly, this study contributes to the literature byassessing how regulation policies and other events impact bank efficiency inTaiwan in regards to deregulation, financial crisis, and financial reform.