The purpose of this paper is to determine whether subordinate subsidiaries to financial institutions can improve their operating performance by establishing financial holding companies (FHCs) in Taiwan. Specifically, this paper uses data envelopment analysis (DEA) to measure profitability and marketability changes among 14 banks with subsidiary FHCs. The DEA models include the CCR and BCC models, both of which analyze the overall efficiency, pure technical efficiency, and scale efficiency of bank firms. Moreover, a bilateral model was used to measure and compare differences in operating performance before and after the FHC Act implementation. Results show that the efficiency scores of 2003-2007 were lower than those of 1997-2001; a bilateral model shows that prior to the implementation of the FHC Act, banks demonstrated higher levels of efficiency than banks subsidiaries to FHCs. Finally, this paper discusses some management implications for the banking industry.
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