Ownership transformation and bank performance in Taiwan: how should the reform proceed?
Banks and Bank Systems
This paper aims to jointly analyze the static, selection, and dynamic effects of ownership on bank performance in Taiwan using data from 1995 to 2010 period. Capital adequacy, asset quality, management, earnings, liquidity, and growth are used as criteria to measure the performance. The results demonstrate that, among the five types of banks identified, the purely state-owned banks and the banks involved in private mergers and acquisitions (M&As) performed better while the banks selected for
... nks selected for participations and acquisitions (P&As) by foreign capital performed particularly worse. One special selection effect is that the state-owned banks that are involved in privatization have higher financial leverage and lower liquidity, revealing their more aggressive mode of operation. As for the primary dynamic effects, both the privatization of the state-owned banks and the P&As by foreign capital appear to improve performance while the performance of the banks involved in private M&As appears to deteriorate in several ways following the ownership changes. The recommendations for further financial reforms in Taiwan are to retain the existing two purely stateowned banks for special missions or policy implementation, to continue to introduce foreign capital participation or acquisitions for management improvement, and to allow the banks that have experienced private M&As to play a leading role in the process of bank consolidation.