Two-Stage Evaluation of the Pre-merger Potential Gains of Taiwan Financial Holding Companies: Dynamic Network Slack-Based Measure Analysis Approach

Shao-Yin Hsu (), Ching-Cheng Lu, Yan-Hui Xiao () and Yung-Ho Chiu
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Shao-Yin Hsu: Ming-Chuan University
Yan-Hui Xiao: Fo Guang University

Computational Economics, 2024, vol. 64, issue 4, No 8, 2178 pages

Abstract: Abstract The Financial Holding Company Act (FHCA) was passed in Taiwan in 2001 with 16 Financial Holding Companies (FHCs) incorporated up to the year 2020. The Financial Supervisory Commission studied and proposed amendments to the “Regulations Governing the Investing Activities of a Financial Holding Company” in 2018 in response to the international large-scale financial development trend, which stipulated that applicants for non-consensual mergers and acquisitions (refers to a merging company) should meet the criteria of sufficient capital, good operating capabilities, international development, and corporate social responsibility. However, a business merger may hinder or promote free market competition; also, it is unclear whether or not a merger can help improve operating efficiency. Therefore, Tone and Tsutsui (Omega 42:124–131, 2014) Dynamic Network Slacks-Based Measure DEA (DNSBM), Dynamic Network Malmquist Productivity Index (DNMPI) (rolling base year and fixed base period), and Halkos and Tzeremes (J Bank Finance 37(5):1658–1668, 2013) Merger Potential gains are applied in this paper for further study. 6 financial holding companies that meet the merger criteria of the Financial Supervisory Commission are designated as the merging companies with the other 8 financial holdings companies designated as the merged companies in this study for forming sixty-three (63) pre-merger groups, which will be evaluated in two stages (operation efficiency and investment efficiency). It is found from the empirical study of this paper that the potential merger of financial holding companies with positive and negative values resulted, respectively, indicating that there is not necessarily a merger potential gain resulted. The efficiency of the investment stage is found to be the most crucial and influential in this study. Hopefully, this study will be referred to by the industry as a quantitative valuation tool in evaluating the pre-merger potential gain with a merger strategy formed accordingly.

Keywords: Financial holding companies; Dynamic network DEA; Malmquist; Merger potential gains (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10614-023-10511-2

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