Abstract
The financial services industry is undergoing global restructuring to become bigger and more sophisticated. This paper aims to explore the relationship between diversification strategy and performance of financial holding companies (FHCs) for a small open economy, such as Taiwan. We employ a two-stage production process including profitability and marketability performance using the method of data envelopment analysis (DEA). Our empirical result shows that: (1) profitability efficiency of low-degreed diversifiers is greater than that of high-degreed ones; (2) concerning diversification type, the related diversifiers perform better in the profitability model than the unrelated diversifiers; (3) however, the unrelated diversifiers perform marginally better in the marketability model than the related diversifiers. It is concluded that the relationship between diversification strategy and an FHC's performance is not only single-faceted, it depends on the degree or type of diversity as well as the perspectives of profitability or marketability efficiency.
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