Performance measurement of Taiwan financial holding companies: An additive efficiency decomposition approach

Abstract

Financial holding companies in Taiwan play an important role in the process of economic development. Facing the financial globalization and market liberalization, competition between financial holding companies is growing. In data envelopment analysis (DEA) studies, the efficiency measurement can have a two-stage structure. A common approach to the two-stage problem is to apply a standard DEA model separately in each stage; such approaches treat the stages in a two-stage process as operating independently of one another. Different from previous studies, this paper takes the series relationship of the two individual stages into account in measuring the profitability and marketability efficiencies of the Taiwan financial holding companies. It is found that the overall efficiencies of all financial holding companies are inefficient and the low efficiency score of the whole process is mainly due to the low efficiency score of the marketability process. Decomposing the overall efficiency into the component efficiencies helps a company identify the stage that causes inefficiency.