DOES SIZE MATTER? FINDING THE PROFITABILITY AND MARKETABILITY BENCHMARK OF FINANCIAL HOLDING COMPANIES

Abstract

The aim of this paper is to explore the efficiency and the benchmarks of financial holding companies (FHCs) for a small open economy, Taiwan. We employ a two-stage production process including profitability and marketability performance using a non-parametric frontier method — data envelopment analysis (DEA). Furthermore, the factor-specific measure and BCC (Banker–Charnes–Cooper) model are combined together not only to identify the inputs/outputs that are most important but also to distinguish those FHCs which can be treated as benchmarks. Our empirical result shows that (1) big-sized FHCs are generally more efficient than small-sized ones; (2) FHCs with the main body of insurance averagely perform better than the other two types (banks and securities); (3) while small efficient FHCs are easily to become benchmarks, big efficient FHCs are deemed as competitive niche players; (4) further mergers and acquisitions among FHCs should be considered so as to achieve economies of scale. The profitability/marketability matrix of FHCs is also presented.