Current studies that apply the traditional BCC-DEA model (Banker et al., 1984) assume that an increase in the output of any given DMU does not affect the output of the other units. However, given the fact that a SF’s gain in market share is another’s market share loss, the traditional DEA models are unable to take into account the zero-sum game competition reality. Since SFs in Taiwan have developed Internet trading techniques to expand their market shares, this provides a plausible reason to apply the ZSG-DEA model developed by Lins et al. (2003).
This study analyses 266 integrated SFs in Taiwan covering the period from 2001 to 2005 and employs three inputs (including fixed assets, financial capital, and general expenses) and a single output (market share). In view of the fact that a SF’s market share gain is another’s market share loss, the traditional BCC-DEA model has a shortcoming in that it ignores the zero-sum game competition and underestimates the average efficiency score as compared with the ZSG-DEA model. Meanwhile, the gap in efficiency scores between the efficient and inefficient SFs under a zero-sum gains framework is significantly less than that under the traditional model.
Meanwhile, in evaluating the performance, it is useful to compute measures of managerial inefficiency for firms operating under different environments. This research demonstrates the four-stage DEA model on the panel data of ISFs during 2002 to 2005 and investigates the impact of environmental variables.
A foreign-affiliated ownership structure is found to have a significantly positive effect on the efficiency scores of SFs. This empirical result also explains the tendency for Deutsche Securities (Asia) Ltd., Lehman Brothers Incorporated and HSBC Securities (Asia) Ltd. to set up new branches in Taiwan during the sample period.
The 2SLS estimation of the simultaneous equations model confirms the simultaneity between the efficiency score and the market share. The empirical results indicate that SFs with larger market shares achieve higher efficiency scores, because large-market-share SFs are able to more easily attract the attention of customers. The more efficient SFs are also able to generate larger market shares, because of the advantages associated with larger profits and more substantial assets.
The empirical results support the current suggestions from policy-makers in Taiwan that mergers among large-sized financial institutions should be encouraged in order to increase market shares and efficiency scores.
Regarding to using the four-stage DEA, the first stage computes the technical efficiency through the traditional CCR and BCC DEA models based on inputs and outputs and after excluding the external variables. The second stage specifies a system of equations with total input radial plus slack movement as the dependent variables obtained from the BCC DEA model and environmental variables as the independent variables. The third stage applies the results of Tobit regression to calculate the maximum predicted data and adjust the original input data. The fourth stage re-computes the DEA based on the adjusted input value and generate the adjusted radial efficiency scores that remove the influence of the external variables on inefficiency.
Based on this four-stage DEA result, the FHC has a significantly negative effect on the managerial efficiency of an ISF. The mean TE of ISFs under an FHC is obviously less than the mean TE of ISFs that have not joined an FHC. Research has shown that it is not only the efficient integrated securities firms (ISFs) that are allied with banks to form a financial holding company. However, the empirical result
For example, in 2002, one year before FHCs’ establishment, the majority of ISFs have increasing returns to scale. On the contrary, an ISF would have decreasing returns to scale if its parent FHC addressed quicker merger activities instead of efficiency improvement. Furthermore, if the firms are dedicated to one or two specialized businesses, then it helps create the high efficiency, because of the learning-curve effect, which is also consistent with the existing literature. It is obvious that the way an individual ISF is run is much more important than its form of organisation. We are also able to observe that non-FHC ISFs were trying to close inefficient branches owing to the threat from FHCs.
Law-induced FHCs in Taiwan provide an opportunity to assess the impacts on the managerial efficiency of their subsidiaries. It might reveal that politics are possibly intertwined with economic activities in Taiwan. Consequently, the purpose of forming an FHC is not to leverage the synergy among subsidiaries and to improve their efficiency, but instead an FHC turns into a negative factor from its securities subsidiary. This result is consistent with the empirical finding in Malaysian banks in 2006. Moreover, FHC’s securities subsidiaries have diversified their dedication on their brokerage business in Taiwan due to on-going mergers from FHCs and cross-selling of banking products. In addition, Taiwanese regulatory authority limited banking branches to not sell securities products to customers directly due to the firewall issue and protecting small-scale securities firms from banks competition.
It’s another major reason to corrupt the one-stop shopping synergy. It also means the ISFs under FHCs are not allowed to leverage banking resources and furthermore decrease brokerage branches. Relatively, most FHCs try hard to expand their asset value through M&A instead of improving their internal efficiency score.
managerial efficiency, showing that ISFs can increase their share of the brokerage market even though the trading turnover is uncontrollable. A higher duration of an ISF also significantly improves its technical efficiency. It shows that ISFs with a longer duration have established a good reputation with customers.
Limitations of this research can be relaxed and overcome by future studies: First, this research estimates the simultaneity between market share and efficiency score using 2SLS with pooled data. Future research may consider the time-series effects using panel data to estimate the simultaneous relationship between market share and efficiency. Second, this research takes the market share as the single output of the ISFs, while future research may assess the efficiency score with both constrained and unconstrained outputs in one DEA model.
This research provides a general framework to test the simultaneity between the market share and ZSG-DEA efficiency score, which can be applied to studying other financial or non-financial markets in the future.
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APPENDICES
Appendix A
A Simple Numerical Example
To illustrate the equal reduction strategy and proportional strategy pointed out by Lins et al. (2003), we derive our new measure of output reduction by providing a simple example involving observations for ten DMUs with their market share yiin Table A1.
Step 1: Assume that DMU1 tries to achieve an efficiency score of 100 via market share maximisation from 25% to 43%. DMU1 gains an 18% market share, indicating that the other DMUj (j ≠ 1) loses a market share of
( -1) = 18%
i iR
y .
Step 2: Replace the output (yj) of each DMUj (j ≠ 1) based on the original output minus the equal output reduction following the equation: ( -1)
- -1
Step 3: The fourth column of Table A1 shows that the equal output reduction strategy is inappropriate because of the negative market share value (y10e= -0.5%) in DMU10after applying this measurement.
Step 4: The proportional output reduction calculations are shown in the last column of
Table A1 via yj ( -1) 18
reduction, and becomes the model that we apply.
Table A1 An Illustrative Example
DMUj yi(%)
Total Market Share 100.0 0 100.0 0.0 100.0
Note: Assume that DMU1 tries to achieve an efficiency score of 100 via market share maximisation
from 25% to 43%. The equal output reduction strategy prompts DMU10to become a negative
output (y10e= -0.5%), using equation ( -1)
; however, the proportional output reduction
strategy avoids this drawback.
Appendix B
Table B1 shows the efficiency scores using the BCC-DEA and ZSG-DEA models for the SFs in Taiwan during the period 2001-2005.
Table B1 Efficiency Scores (θi) of BCC-DEA and ZSG-DEA Models for the SFs in Taiwan during
2001-2005
2001 2002 2003 2004 2005
Securities Firms BCC ZSG BCC ZSG BCC ZSG BCC ZSG BCC ZSG
JIH SUN 95.10 98.93 100.00 100.00 76.30 81.05 88.40 93.07 100.00 100.00
JEN HSIN 59.70 59.58
FIRST 59.60 59.54 85.40 85.12 62.60 62.47 64.20 63.87 43.00 42.75
ASIA 74.80 75.24 58.40 58.72 56.40 56.64
TINGKONG 65.30 65.55
ENTRUST 55.20 55.06
HORIZON 45.20 46.01 37.60 37.89 47.80 48.18 38.50 38.65 46.70 46.66 MACQURIE* 50.10 49.86 62.30 61.98 100.00 100.00 100.00 100.00 89.80 89.36 ABN AMRO* 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 MERRILL LYNCH* 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 NOMURA (HK)* 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 67.10 66.57 SOCIETE GENERALE(HK)* 100.00 100.00 100.00 100.00 100.00 100.00 67.20 66.57 87.50 87.40 GOLDMAN SACHS (ASIA)* 100.00 100.00 100.00 100.00 49.90 49.44 100.00 100.00 100.00 100.00 ORIENTAL 98.00 98.65 49.00 49.24 100.00 100.00 100.00 100.00 100.00 100.00 FIRST TAIWAN 48.00 47.87 44.20 44.02
TACHAN 73.50 73.37 78.10 77.81 53.40 53.33 99.30 98.81 76.50 76.37 HUA NAN 80.90 82.72 95.70 97.97 78.60 80.49 95.00 96.54 86.00 87.96 FULL LONG 62.50 62.35 64.80 64.63 31.40 31.30 54.70 54.33 18.60 18.55 PACIFIC 82.70 83.10 61.40 61.66 51.60 51.77 46.00 46.02 46.50 46.48 TA CHING 84.40 84.39 79.40 79.36 69.10 69.12 77.70 77.43 68.60 68.36 CAPITAL 88.70 92.73 81.20 85.88 72.80 77.07 100.00 100.00 92.00 96.66 CHUNG HSING 62.30 62.24 55.80 55.71
FIRST TAISEC 90.80 90.88 79.80 79.94 81.30 81.76 75.10 75.89 92.50 94.28 FORWIN 44.60 44.51 35.30 35.18 38.40 38.26 49.20 48.84 17.30 17.16 SINOPAC 89.90 93.29 85.40 90.73 87.60 93.87 87.60 92.25 96.50 100.00 TAIWAN 100.00 100.00 89.90 94.53 84.60 90.00 100.00 100.00 100.00 100.00
TAIYU 65.90 66.17 66.90 67.39
KGI 100.00 100.00 83.30 87.40 75.90 80.44 99.50 100.00 100.00 100.00 Table continued
2001 2002 2003 2004 2005
Securities Firms BCC ZSG BCC ZSG BCC ZSG BCC ZSG BCC ZSG
IBT 97.70 97.65 67.20 67.30 100.00 100.00 100.00 100.00 92.10 93.18 GRAND CATHAY 83.10 86.91 69.70 73.32 78.00 81.83 94.80 100.00 100.00 100.00 TAIWAN INTL. 88.10 90.40 85.00 87.77 68.70 71.13 71.40 73.60 78.50 81.17 PRESIDENT 92.80 96.67 95.80 100.00 89.20 93.58 94.50 98.14 94.60 98.11 MASTERLINK 85.80 89.02 75.60 79.10 80.90 85.20 91.30 95.06 89.80 92.96 PRIMASIA 48.20 48.16 65.10 64.82 60.70 60.50 79.90 79.70 48.70 48.45 CHINATRUST 100.00 100.00 51.10 51.59 77.70 78.59 90.90 91.88 100.00 100.00
BARITS 100.00 100.00 71.20 71.82
GRAND FORTUNE 58.30 58.24 53.00 52.82 60.10 59.89 41.20 40.87 56.30 55.79 TA CHONG 93.70 93.53 63.20 63.12 53.20 53.14 77.60 77.29 64.60 64.45 RELIANCE 77.20 76.99 100.00 100.00 40.60 40.87 58.90 58.56 58.10 57.70 MEGA 62.10 62.77 56.90 57.43 86.30 90.44 75.70 78.64 88.40 91.21 CONCORD INTL. 65.30 65.32 90.50 90.24 57.80 57.67 100.00 100.00 47.70 47.60
JINHWA 60.50 60.13
WATERLAND 62.30 62.77 60.70 61.60 52.90 53.87 69.60 70.26 55.60 56.20
HSINBAO 99.50 99.91
J.P. MORGAN* 65.70 65.75 68.80 68.71 61.90 61.78 60.10 59.97 79.60 79.40 CONCORD 83.20 84.03 64.80 65.58 62.80 63.61 79.70 80.21 72.40 73.28
CONCOURSE 67.80 67.81
SINOPAC(OLD) 78.70 79.28
GRAND ORIENT 61.10 61.05
SHINKONG 61.40 61.44 25.90 25.98 76.80 76.56 67.80 67.45 72.80 72.75 CITIBANK* 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 FU HWA 83.10 84.98 87.90 90.52 82.80 85.40 88.00 90.34 70.30 72.59 SUN-FUND 100.00 100.00 49.80 49.55 37.40 37.21 40.90 40.57 32.10 31.82 HO TUNG 100.00 100.00 50.30 49.90 82.30 81.65 63.30 62.79
E. SUN 80.70 80.13 70.50 70.04 44.20 44.14 61.80 61.60 65.50 65.39 DAIWA 100.00 100.00 94.30 93.63 100.00 100.00 100.00 100.00 100.00 100.00 FUBON 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 POLARIS 95.30 99.44 97.50 100.00 99.50 100.00 100.00 100.00 100.00 100.00 YUANTA 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 FAR EASTERN 66.00 65.59 60.90 60.42 44.30 43.98 55.40 54.93 25.20 25.03 YUAN LI 91.60 91.33 74.30 74.01 100.00 100.00
Table continued
2001 2002 2003 2004 2005
Securities Firms BCC ZSG BCC ZSG BCC ZSG BCC ZSG BCC ZSG
DEUTSCHE (ASIA)* 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 LEHMAN BROTHERS* 100.00 100.00 100.00 100.00 100.00 100.00
HSBC (HK)* 46.70 46.30
CATHAY 38.40 38.07 69.10 68.66
Average 80.10 80.68 74.89 75.64 74.82 75.81 80.87 81.44 76.73 77.21
Notes: 1. The reason for the unbalanced panel data was mainly due to the mergers that took place in the securities industry during 2002-2003 and the new Taiwan branches that were set up by foreign-owned SFs in 2003, respectively. To establish the financial holding companies (FHCs), eight SFs were merged in 2002. Deutsche Securities (Asia) Limited, Lehman Brothers Incorporated, HSBC Securities (Asia) Limited and Macquarie Securities. (ING) Securities in Taiwan was acquired by Macquarie Securities) established new branches in Taiwan during 2002-2005;
2. * indicates the foreign-owned SFs.
PERSONAL PROFILE
Mr. Chin-Yi Fang
11F-3, No. 78, Rd. Chung-Cheng, City Chung-Ho, Taipei County, Taiwan E-mail:chinyifang@gmail.com
Working Experiences
Jul. 1993- Jun. 1995 Management Trainee, Unilever Taiwan LTD.
Jun. 1995-Apr. 1997 Officer, The President Office, Formosa Plastic Group.
Apr. 1997-May 2001 Manager, Citibank, N.A.
Assistant Vice President, Citibank, N. A.
Vice President, Citibank, N. A.
Jun. 2001-Mar. 2006 Senior Vice President, Jih-Sun Securities Firms.
Senior Vice President, Jin-Sun Financial Holdings.
Aug. 2007- Assistant Professor, Dept. of Finance, China University of Tech.
Publications
1. Hu, Jin-Li and Chin-Yi Fang, Forthcoming, “Do Market Share and
Efficiency Matter for Each Other? An Application of the Zero-Sum Gains Data Envelopment Analysis,” Journal of the Operational Research Society (SSCI, SCI).
2. Hu, Jin-Li and Chin-Yi Fang, Forthcoming, “Managerial Efficiency of Securities Firms under the Law-induced Financial Holding Companies in Taiwan,” Journal of Information & Optimization Sciences (EI).
Conference Papers
1. Hu, Jin-Li and Chin-Yi Fang, Nov. 2006, “Managerial Efficiency of Securities Firms under Financial Holding Companies in Taiwan,”
Proceedings of 2006 International Conference on Knowledge-Based Economy and Global Management, pp. 256-275, Taiwan, Nov. 29-30.
2. Hu, Jin-Li and Chin-Yi Fang, Dec. 2006, “Managerial Efficiency of Securities Firms under FHC,” 2006 Globalization and Regional Economic Development, pp.123-139, Gyeong Ju, Korea, Dec. 14-16.
3. Hu, Jin-Li and Chin-Yi Fang, Jun. 2007, “Do Market Share and Efficiency Matter for Each Other: A Zero-Sum Gains Data Envelopment Analysis,”
Poster Session of Tenth European Workshop on Efficiency and Productivity Analysis, Lille, June 27-30.
4. Hu, Jin-Li and Chin-Yi Fang, Jun. 2007, “A Metafrontier Study of Securities Efficiency under Zero-Sum Gains,” 2007 中華決策科學學會年會暨研討會 博士論文競賽佳作.
5. Hu, Jin-Li and Chin-Yi Fang, Nov. 2007, “Environment and Statistical Noise-adjusted Efficiency under Zero-sum Gains with an Application to Securities Firms, ” 2007 台灣經濟學會年會暨研討會.
Award
「合作金庫商業銀行 95 年度研究獎學金」博士論文組