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Asia-Pacific Financial Markets

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23.05.2022 | Original Research

Comparing Cost Efficiency Between Financial and Non-financial Holding Banks and Insurers in Taiwan Under the Framework of Copula Methods and Metafrontier

verfasst von: Tai-Hsin Huang, Yi-Chun Lin, Kuo-Jui Huang, Yu-Wei Liao

Erschienen in: Asia-Pacific Financial Markets | Ausgabe 4/2022

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Abstract

This paper examines the cost efficiency (CE), technology gap ratio (TGR), and overall cost efficiency (OCE) of 43 banks and 27 life insurance companies operating in Taiwan. The use of the copula method to derive the joint probability density function for the cost functions of financial holding banks (FHBs) and financial holding life insurers (FHLIs) allows us to take into account the operational synergies enjoyed by the financial holding companies. Our empirical results are as follows. (1) A significant, positive correlation exists between the cost efficiencies of FHBs and FHLIs, supporting that both types of firms benefit from the synergy effect. (2) The omission of synergy effects leads to underestimated measures of CE and OCE for FHBs, but leaves the measure of TGR intact. (3) The absence of synergies results in underestimating the CE scores for FHLIs, but the TGRs of FHLIs and non-FHLIs are overestimated, exaggerating the OCE scores.

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Peng et al. (2017) define banassurance as the use of banks by insurance companies as an additional distribution channel for their products.

This is done by dividing E and w by \({w}_{1}\), which is arbitrarily selected and can be replaced by either \({w}_{2}\) or \({w}_{3}\).

Note that the numbers of inputs and outputs may differ in both industries. For details, please see section IV.

The distinction between the SMF and the model proposed by Battese et al. (2004) and O’Donnell et al. (2008) is the emergence of the term of\({V}_{ji}^{M}\) in (7), which makes (7) a regression equation, instead of a deterministic regression such that linear programming techniques are required to find the cost boundary.

See chapter 4.8.1 of Cherubini et al. (2004) for a detailed description on the Gaussian copula. Amsler et al. (2014) point out an important feature of copula functions, i.e., they contain different ranges of dependence. The Gaussian, Frank, and Plackett copulas are comprehensive copulas, covering the entire range of dependence, while the Farlie–Gumbel–Morgenstern copula can model limited correlations, ranging between about − 0.3 and + 0.3.

Tsay et al. (2013) prove that the approximation error is within\({10}^{-5}\).

Some FHCs contain either no commercial bank or no insurance company. Their affiliated insurers or banks are therefore identified as non-FHLIs or non-FHBs.

The measure of SE is calculated as \(SE={\sum }_{i=1}^{3}\partial \mathrm{l}\mathrm{n}C/\partial \mathrm{l}\mathrm{n}{y}_{i}\).

The measure of TC is formulated as \(TC=\partial \mathrm{ln}C/\partial t\).

Both diagrams of CE for FHBs and non-FHBs are found to peak in 2007 and achieve a trough in 2009 after the subprime crisis. The measure of SE for non-FHBs slightly fluctuates around 0.85 during the sample period, while the same measure for FHBs increases over time from around 0.58 in 2002 to 0.87 in 2017, except for the years of 2007 and 2009.

The SE measure of FHLIs excluding the synergy effects is equal to 0.987, which is quite close to unity and corresponds to constant returns to scale.

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Titel: Comparing Cost Efficiency Between Financial and Non-financial Holding Banks and Insurers in Taiwan Under the Framework of Copula Methods and Metafrontier
verfasst von: Tai-Hsin Huang
Yi-Chun Lin
Kuo-Jui Huang
Yu-Wei Liao
Publikationsdatum: 23.05.2022
Verlag: Springer Japan
Erschienen in: Asia-Pacific Financial Markets / Ausgabe 4/2022
Print ISSN: 1387-2834
Elektronische ISSN: 1573-6946
DOI: https://doi.org/10.1007/s10690-022-09373-9

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