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Bank Market Structure and Performance in Taiwan Before and After the 1991 Liberalization

Author

Listed:
  • Anthony H. Tu

    (National Chengchi University, Taipei, Taiwan, R.O.C.)

  • Shen-Yuan Chen

    (Ming Chuan University, Taipei, Taiwan, R.O.C.)

Abstract

Two competing hypotheses regarding market structure and the performance of firms are the traditional "structure-conduct-performance" (SCP) hypothesis, in which high concentration lowers the cost of collusion and earns monopoly rents, and the "efficiency" hypothesis, which emphasizes the operating efficiency of particular firms. In this paper, we present the results from testing both the hypotheses in the context of Taiwan's banking market. Our goal is to understand the effect of the 1991 liberalization policy by examining whether market structure and firm performance in this industry differ in the periods before and after the 1991 revisions to the Banking Act. Prior to the 1991 revisions, our results do not support either the SCP or the efficiency hypothesis for Taiwan's banking industry. The industry's market structure seems to exhibit a kind of "quiet-life" competing environment. The results for the period after the 1991 revisions tend to support the competing efficiency hypothesis. Our findings suggest that the 1991 revisions to the Banking Act have stimulated competition and brought about an emphasis on efficiency in Taiwan's banking industry.

Suggested Citation

  • Anthony H. Tu & Shen-Yuan Chen, 2000. "Bank Market Structure and Performance in Taiwan Before and After the 1991 Liberalization," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 475-490.
  • Handle: RePEc:wsi:rpbfmp:v:03:y:2000:i:04:n:s0219091500000236
    DOI: 10.1142/S0219091500000236
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    Citations

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    Cited by:

    1. Dai, Jiawa & Feng, Yuchen & Wang, Ziuqing & Yuan, Guang, 2021. "Does higher market power necessarily reduce efficiency? Evidence from Chinese rice processing enterprises," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 24(1).
    2. Asongu, Simplice & Batuo, Enowbi & Nwachukwu, Jacinta & Tchamyou, Vanessa, 2018. "Is information diffusion a threat to market power for financial access? Insights from the African banking industry," Journal of Multinational Financial Management, Elsevier, vol. 45(C), pages 88-104.
    3. Li-Hua Lai & Li-Chin Hung & Chau-Jung Kuo, 2016. "Do Well-Financial Holding Company Organized Banks in Taiwan Take More Risk?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-30, December.
    4. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Size, efficiency, market power, and economies of scale in the African banking sector," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-22, December.
    5. Kazumine Kondo, 2017. "Do credit associations compete with each other in Japanese regional lending markets?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(1), pages 195-210, January.
    6. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Testing the Quiet Life Hypothesis in the African Banking Industry," Journal of Industry, Competition and Trade, Springer, vol. 19(1), pages 69-82, March.
    7. Asongu, Simplice A. & Biekpe, Nicholas, 2018. "ICT, information asymmetry and market power in African banking industry," Research in International Business and Finance, Elsevier, vol. 44(C), pages 518-531.
    8. David Adeabah & Charles Andoh, 2020. "Cost efficiency and welfare performance of banks: evidence from an emerging economy," International Journal of Managerial Finance, Emerald Group Publishing, vol. 16(5), pages 549-574, July.
    9. Kondo, Kazumine, 2014. "Do Credit Associations Compete with Each Other in Japanese Regional Lending Markets?," MPRA Paper 56669, University Library of Munich, Germany.
    10. Simplice Asongu & Rexon Nting & Joseph Nnanna, 2020. "Market power and cost efficiency in the African banking industry," Journal of Economic Studies, Emerald Group Publishing, vol. 47(6), pages 1247-1264, May.
    11. Vivek Sharma, 2011. "Stock returns and product market competition: beyond industry concentration," Review of Quantitative Finance and Accounting, Springer, vol. 37(3), pages 283-299, October.
    12. Andrieş, Alin Marius & Căpraru, Bogdan, 2014. "The nexus between competition and efficiency: The European banking industries experience," International Business Review, Elsevier, vol. 23(3), pages 566-579.
    13. Paolo Coccorese & Alfonso Pellecchia, 2010. "Testing the ‘Quiet Life’ Hypothesis in the Italian Banking Industry," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 39(3), pages 173-202, November.
    14. Kondo, Kazumine, 2014. "Cross-Prefecture Expansion of Regional Banks in Japan and Its Effects on Lending-Based Income," MPRA Paper 52978, University Library of Munich, Germany.

    More about this item

    Keywords

    Bank Market Structure; Bank Performance; The Revisions of Banking Act;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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