The impact of transformation on economic efficiency - a case study of financial holding companies in Taiwan

The present study examines the question of whether the transformation of Taiwan's banks into financial holding companies (FHCs) has led to an improvement in operating efficiency. The results indicate that while comparison of FHCs and banks shows that FHCs are significantly more efficient than non-FHC banks, if the comparison is made in terms of efficiency before and after conversion to FHC status, then no significant increase in total factor productivity (TFP) is seen after conversion to FHC status. The study's results indicate that while the transformation of some Taiwanese banks into FHCs has made these banks more competitive vis-a-vis other, non-FHC banks, the conversion to FHC status has not made any significant contribution towards these banks' own efficiency growth. Government should keep encouraging the conversion of FHC banks, and, furthermore, stimulate the FHC banks on financial reform and overseas market expansion in order to elevate the efficiency of Taiwan financial industry.