The Approach for Estimating Cost Growth Rates in the Taiwanese Banking Industry

Yung-Lieh Yang ()
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Yung-Lieh Yang: Department of Finance, Ling Tung University, Taiwan

Journal of Economics and Management, 2010, vol. 6, issue 1, 79-111

Abstract: The most present articles adopted the output-oriented Malmquist productivity index (OM) for estimating the production efficiency and productivity of Bank. Based on the method of Yang and Lee (2009), the research provides the new way to discuss cost efficiency and cost growth rate of Taiwanese banking industry during 1995 to 2005. The cost growth rate was decomposed into five components: technical efficiency change, allocation efficiency change, technical structure change, input price change and output scale change. Empirical results indicate 7.87% cost growth rates decline in the banking industry. Then we apply the random-effects Tobit panel data regression analysis to investigate the determinant effects in terms of the cost efficiency and cost growth rates for these banks. The results show that the average scale of these banks is larger than optimal scale. It means that the increase of banks' scale has positive relationship to cost efficiency and allocation efficiency. The index of cost efficiency is significantly improved by the decrease of Non-Performing Loan. At least, system generalized method of moment dynamic panel model results indicate that the cost growth rate of Taiwanese banks exhibits significant positive persistence.

Keywords: banking sector; data envelopment analysis; malmquist index; cost growth rate (search for similar items in EconPapers)
JEL-codes: D24 G21 O49 (search for similar items in EconPapers)
Date: 2010
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