Banking Mergers: The Impact of Financial Liberalization on the Taiwanese Banking Industry

Peiyi Yu and Bac Van Luu

Review of Quantitative Finance and Accounting, 2003, vol. 20, issue 4, 385-413

Abstract: The objective of this paper is to examine the nature of the Taiwanese banking sector and to analyze the impact of financial liberalization on the Taiwanese banking industry. We present empirical evidence to show that the recent wave of bank mergers observed in other countries is also suitable for Taiwan. Based on empirical results for overall economies of scale and expansion path subadditivity, Taiwanese banks should obtain the benefit of scale economies by merging with other banks rather than expanding by opening more branches. Furthermore, we show that the Relative Market Power hypothesis--which postulates that greater market shares lead to higher profitability--finds empirical support in Taiwanese banking data after financial reforms were enacted. Copyright 2003 by Kluwer Academic Publishers

Date: 2003
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