Measuring cost efficiency in presence of heteroskedasticity: The case of the banking industry in Taiwan

Mohanty, Sunil; Lin, Winston T.; Lin, Hong‐Jen

doi:10.1016/j.intfin.2013.05.001

Cited by 11 publications

(4 citation statements)

References 64 publications

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“…For example, by examining from 46,504 to 69,742 annual observations[3] of US commercial banks from 1985 to 1994, Berger and DeYoung (1997) argued that problem loans lead to reductions in cost-efficiency. Similar evidence exists in the Chinese banking system (Berger et al , 2010) or the Taiwanese banking system (Mohanty et al , 2013), for example, showing that NPLs play an important role in the banks’ efficiency.…”

Section: Relevant Literaturesupporting

confidence: 53%

“…Because we want to examine the impact of banks’ ownership ( type : dummy variable that has a value of 1 if the bank is state-owned and value of 0 otherwise) and asset size ( size : logarithmic value of total assets) on cost-efficiency, we include those two as independent variables of equation (2), following La Porta et al (2002), Mohanty et al (2013), Dong et al (2014), among others. Notice that equations (1) and (2) will be estimated in parallel following the single-step approach (Battese and Coelli, 1995).…”

Section: Technical Aspects Of the Studymentioning

confidence: 99%

“…7. This argument becomes more crucial when time-series and panel data are involved, where heterogeneity can bias the estimation results (Mester, 1997; Bos et al ., 2009; Mohanty et al ., 2013). …”

Section: Notesmentioning

confidence: 99%

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Measuring efficiency of Vietnamese banks

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Tripe²

2017

PAR

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Purpose This paper aims to examine alternative methods for treating nonperforming loans (NPLs) in bank cost-efficiency studies using stochastic frontier analysis (SFA). Design/methodology/approach The authors consider three methods of treating NPLs in SFA: as an additional control variable, as an environmental factor or as a deduction from total loans. Using data from the Vietnamese banking system (2003-2010), the authors then compare these results with those of the base model (where total loans is used regardless of the NPLs) to see which one is more appropriate for this study. Findings The authors observed that the first two methods are inappropriate for the analysis: one cannot find the significant relationship between NPLs and the banks’ total cost, and the other cannot account for any inefficiency at all. The authors suggested that the third method of separating NPLs from total loans can provide better insights. Using the proposed method, the authors showed that the cost-efficiency of Vietnamese banks over the period examined was moderate with a slight decreasing trend. When NPLs are separated, the cost-efficiency decreases in state-owned banks and big banks, whereas it increases in small and private banks. Research limitations/implications Research is limited to Vietnamese banks during a certain period, and it would be useful to apply the same technique to other data sets. Practical implications The paper suggests a new approach to account for NPLs in cost SFA studies in banking. Originality/value The paper provides a much more searching analysis of NPLs in banking than has generally been seen in previous research.

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Section: Relevant Literaturesupporting

confidence: 53%

Section: Technical Aspects Of the Studymentioning

confidence: 99%

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Measuring efficiency of Vietnamese banks

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2017

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“…Huang and Kuo [16] found that FHC banks have higher loan spreads than non-FHC banks. Other studies indicate that FHC banks are more efficient than independent banks because FHC banks use larger capital and better reputations to achieve higher profitability [17,18]. Similarly, state-owned banks in Taiwan are more likely than privately owned banks to be cost efficient because state-owned banks have higher power to implement policies to reduce expenditures [18].…”

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Business Sustainability Performance Evaluation for Taiwanese Banks—A Hybrid Multiple-Criteria Decision-Making Approach

Lin

Chang

2019

Sustainability

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The Taiwanese government has encouraged bank privatization and the establishment of financial holding companies to improve banking sustainability and consolidate banks, insurance companies, and securities firms. It is important for bank decision makers to set policies that lead to sustainable development. However, the literature remains unclear about the types of banks that achieve greater business sustainability. This paper aims to (1) identify the criteria that affect banks’ business sustainability and (2) determine the most sustainable types of banks. This study uses a hybrid multiple-criteria decision-making approach on eighteen financial criteria for twenty-five Taiwanese listed banks with data from 2012 to 2016. The results show that non-performing loan ratio is the most critical factor. In addition, financial holding companies outperformed non-financial holding companies. Financial holding companies with insurance companies as their largest subsidiaries performed best. Private banks exceeded state-owned banks in sustainability. The results lead to two implications. First, banks should value risk over profitability and diversify financial products. Second, the government should continue to privatize banks. These findings suggest that bank managers implement an enterprise resource planning (ERP) system with a master plan, framework, and guidelines to help them track bank performance indicators to ensure sustainability.

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XE among financial firms in Asia: c.1991–2017

Frantz¹

2020

The Beginnings of Behavioral Economics

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Measuring cost efficiency in presence of heteroskedasticity: The case of the banking industry in Taiwan

Cited by 11 publications

References 64 publications

Measuring efficiency of Vietnamese banks

Measuring efficiency of Vietnamese banks

Business Sustainability Performance Evaluation for Taiwanese Banks—A Hybrid Multiple-Criteria Decision-Making Approach

XE among financial firms in Asia: c.1991–2017

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