The DEA model is applied to analyze the operational efficiency of Taiwan's publiclylisted banks to reveal the influence of the rising non-performing loan ratio (NPLR) on Taiwan's banking industry. After taking into account the NPLR and the different classifications of banks, the respective performances of different types of banks exhibit the following variations and characteristics: the originally more-efficient new private banks significantly fell behind the old public banks in terms of efficiency scores after the NPLR was included. The old private banks' operational efficiency fell behind that of the other banks at all times. The productivity of all new private banks exceeded that of the other banks. . Downloaded from www.worldscientific.com by CHINESE UNIVERSITY OF HONG KONG on 02/06/15. For personal use only. Rev. Pac. Basin Finan. Mark. Pol. 2008.11:287-304. Downloaded from www.worldscientific.com by CHINESE UNIVERSITY OF HONG KONG on 02/06/15. For personal use only.4 According to the concept of the bank's operational efficiency, if the efficient bank's efficiency score is set as 1, and the inefficiency score is less than 1, we are incapable of correctly distinguishing the difference in efficiency between the efficient banks, and, therefore, the super-efficiency scores are used.
All 11 cases of listed banks in Taiwan involved in merger and acquisition during 2000-2006 are examined. In this paper, the cumulative abnormal returns of acquiring banks two days after merger announcement are found to be negative, although target banks' shareholders enjoy higher abnormal returns. For acquiring banks, the post-merger cost efficiencies are not improved. State-owned banks are more efficient and profitable. Operating restrictions on banks and the recession during sample period are the major reasons. It is also suggested that several state-owned banks should be preserved as a means of improving social welfare.
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