In response to international competition after Taiwan joined the WTO, the successive
establishment of financial holding companies gives impetus to the trend towards shareholding concentration, large-scale organizational structure and diversification of services for financial institutions, all of which are expected to have major impacts on the future of Taiwan's banking industry.
This study attempts to explore the influence of a financial holding company (FHC) system on the operational performance of subsidiary banks by using a sample of domestic banks taken during the period 1999-2007. Techniques of nonparametric frontier efficiency analysis are employed to measure
the banks’ performance. The major findings of the study are as follows. First, in general, there were no significant differences in operational performance between the FHC and non-FHC subsidiary banks.
However, the former outperformed the latter in technical efficiency after the FHC Act came into effect and, from then on, new FHCs were set up one after another. Second, the FHC subsidiary banks showed no apparent improvement in operational performance after the formation of FHCs. Third, the FHC
subsidiary banks were significantly different from the non-FHC banks in terms of productivity change and technological change as well as scale efficiency before joining the FHCs. However, the differences
became insignificant after they joined the FHCs. Fourth, the changes in technology, technical efficiency and scale efficiency of the FHC subsidiary banks presented a statistically significant difference between
the pre- and post- establishment periods of their FHCs.
Asian Journal of Management and Humanity Sciences 4(4):259-270