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Cost Structure and Efficiency of the Credit Departments of the Farmers' Associations in Taiwan

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  • Cheng-Few Lee

    ()
    (Rutgers University, Piscataway, New Jersey 08854-8054, USA; Graduate Institute of Finance, National Chiao Tung University, 1001 Ta Hsueh Road, Hsinchu, Taiwan 30010, ROC)

  • Kehluh Wang

    ()
    (Graduate Institute of Finance, National Chiao Tung University, 1001 Ta Hsueh Road, Hsinchu, Taiwan 30010, ROC)

  • Ya-Hui Peng

    ()
    (Institute of Business Administration, Hsuan Chuang University, 48 Hsuan-Chuang Road, Hsiang San District, Hsinchu, 300 Taiwan, ROC)

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    Abstract

    This study addresses the cost structure and operational efficiency of the credit departments of the farmers' associations in Taiwan, adopting both stochastic cost frontier analysis and data envelopment analysis. The factors that influence operational efficiency are also examined. In particular, problems of loan quality are considered to account for the considerable amount of non-performing loans. The results of this study indicate that economies of scale exist. However, the credit departments of the farmers' associations do not benefit from economies of scope. Non-performing loans are associated with a cost increase of approximately 17.6%. Regression analysis verifies that the non-performing loan ratio significantly and negatively influences all indicators of efficiency and that the 1997 Asian financial crisis also has a negative impact on efficiencies.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 09 (2006)
    Issue (Month): 03 ()
    Pages: 385-403

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    Handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:03:p:385-403

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    Related research

    Keywords: Credit departments of the farmers' associations; bank efficiency; stochastic cost frontier; data envelopment analysis;

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