Efficiency and capital adequacy in Taiwan banking: BCC and super-DEA estimation

Yung-Ho Chiu, Chyanlong Jan, Da-Bai Shen and Pen-Chun Wang

The Service Industries Journal, 2008, vol. 28, issue 4, 479-496

Abstract: In this study the researchers adopt two DEA methods -- Banker-Charnes-Cooper and Super Efficiency -- to investigate whether a bank's technical efficiency is significantly different when capital adequacy (risk) is specified compared with when capital adequacy (risk) is not specified. The information is obtained from 46 Taiwanese banks for the period 2000 to 2002. The Malmquist total factor productivity (TFP) index is employed to measure the impact of productivity change on the panel data. The empirical results from the DEA approach are summarized as follows: (1) Capital adequacy is proven to be an influential factor in evaluating the efficiency of banks. (2) The average efficiency scores of banks with high capital adequacy (>8%) are significantly higher than those of banks with lower capital adequacy (>8%). (3) The efficiency scores of banks with high risk capital requirement (above the average) are higher than those of banks with lower risk capital requirement (under the average). (4) Banks with both high capital adequacy and high risk capital requirement are superior in performance than all the other banks, while banks with both low capital adequacy and low-risk capital requirement performance are the worst by contrast. (5) Based on the Malmquist total TFP index, we find that bank productivity has not increased.

Date: 2008
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DOI: 10.1080/02642060801917604

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The Service Industries Journal is currently edited by Eileen Bridges, Professor Domingo Ribeiro, Ronald Goldsmith, Barry Howcroft and Youjae Yi

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