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Efficiency and credit rating in Taiwan banking: data envelopment analysis estimation

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  • Yung-Ho Chiu
  • Chun-Mei Ma
  • Ming-Yuan Sun
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    Abstract

    In this article, we use the data envelopment analysis to measure the efficiency of banks before and after credit rating is taken into consideration and we also employ the Malmquist Productivity Index to measure the total factor productivity changes from 2001 to 2003. The results are as follows: (1) There is a positive relationship between the efficiency scores and credit rating, and thus, the credit rating can be a representative to evaluate the performance and quality of a bank; (2) We use the Wilconxon two-sample test of nonparametric statistic to test the influences of credit rating. The empirical result shows that the credit rating is proven to influence the efficiency of banks; (3) The efficiency scores improve in both investment grade (above tw BBB-) and speculation grade (under tw BBB-), when credit rating is taken into consideration. The empirical results show that the efficiency scores of banks with a high credit rating improved relatively more when compared to banks with a lower credit rating; (4) In this research we also adopt the Malmquist index to observe the productivity and efficiency changes from year to year. We obtain results whereby the improvement of efficiency may be influenced greatly both from pure technical and scale efficiency changes.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 42 (2010)
    Issue (Month): 20 ()
    Pages: 2587-2600

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    Handle: RePEc:taf:applec:v:42:y:2010:i:20:p:2587-2600

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    Cited by:
    1. Boon L Lee, 2012. "Efficiency and Productivity of Singapore's Manufacturing Sector 2001-2010: An analysis using Simar and Wilson's (2007) bootstrapped truncated approach," School of Economics and Finance Discussion Papers and Working Papers Series 283, School of Economics and Finance, Queensland University of Technology.
    2. Boon L. Lee, 2013. "Productivity, technical and efficiency change in Singapore's services sector, 2005 to 2008," Applied Economics, Taylor & Francis Journals, vol. 45(15), pages 2023-2029, May.

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