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Impact of Operational Risk Toward the Efficiency of Banking - Evidence from Taiwans Banking Industry

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  • Cheng-Ping Cheng
  • Manh Trung Phung
  • Chun-Lin Hsiao
  • Da-Bai Shen
  • Bih-Shiow Chen

Abstract

This study adopts a GARCH model to estimate the operational risk of Taiwan’s banking industry by the Top-Down method. Based on the approach of Battese and Coelli (1995) we estimate the Trans-log cost model and the inefficient model simultaneously by the Maximum likelihood method. Our empirical result shows that the operational risks have a significantly positive impact on cost inefficiency - that is, regardless of which methods we use for calculation, operational risk drives down economic efficiency. Comparing with the basic index method, the multi-factor model of the Top-Down method is better at analyzing the relationship of operational risk and efficiency.

Suggested Citation

  • Cheng-Ping Cheng & Manh Trung Phung & Chun-Lin Hsiao & Da-Bai Shen & Bih-Shiow Chen, 2018. "Impact of Operational Risk Toward the Efficiency of Banking - Evidence from Taiwans Banking Industry," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(6), pages 815-831.
    • Handle: RePEc:asi:aeafrj:v:8:y:2018:i:6:p:815-831:id:1713
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    Cited by:

    1. Azleen Ilias & Erlane K Ghani & Zubir Azhar, 2019. "Factors Influencing Knowledge and Persuasion of Financial Regulators in the XBRL Adoption Process: The Technological Perspective," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(3), pages 170-180, May.
    2. Hafiz Waqas Kamran & Shamsul Bahrain bin Mohamed Arshad & Abdelnaser Omran, 2019. "Country Governance, Market Concentration and Financial Market Dynamics for Banks Stability in Pakistan," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(2), pages 136-146, July.

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