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The Study on the Relationship between Bank M&A, SME Lending, Credit Guarantee and Bank Efficiency

Shu-Hwa Chih (), Lien-Wen Liang () and Bor-Yi Huang ()
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Shu-Hwa Chih: Department of Business Administration, Soochow University, Taipei, Taiwan.
Lien-Wen Liang: Department of Banking and Finance, Chinese Culture University, Taipei, Taiwan.
Bor-Yi Huang: Department of Finance and Banking, Shih Chien University, Taipei, Taiwan.

Journal for Economic Forecasting, 2018, issue 2, 95-117

Abstract: Small and medium enterprises (SMEs) make significant contributions to investments and employment and play a particularly important role in the country’s economic growth and industrial development. Due to the small scale and poor financial information transparency and structure of SMEs, they rely greatly on bank loans and credit guarantee in fund sources. The effect to bank efficiency from loans to SMEs and credit guarantee, therefore, is an important topic. In addition, banks in Taiwan have been undergoing consolidation in more than one decade. Therefore, the aim of this study is to investigate the relationship between bank M&A, SME lending, credit guarantee and efficiency from Taiwan commercial bank point of view. Based on our empirical results, the SME lending has a positive effect on the cost and profit efficiency. When banks increase credit guarantee for SMEs, the profit efficiency of banks would increase, but cost efficiency decreases instead. The result shows that credit guarantee scheme can reduce the expected loss generated from bad debts and increase expected return derived from lending. In M&A, foreign M&A or foreign capital invested banks have relatively better profit efficiency underwent to merge.

Keywords: bank M&A; SME lending; credit guarantee; bank ownership structure; cost and profit efficiency (search for similar items in EconPapers)
JEL-codes: G20 G21 G34 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:rjr:romjef:v::y:2018:i:2:p:95-117