FS <0.001*** <0.001 FS^2 >-0.001*** <0.001
ELEC 4.958* 2.947
ERROR -2.985* 1.591
IB -0.006* 0.004
SEC 0.172*** 0.058
Year 2003/2004 0.047 0.041 Log Likehood 17.294
Adj. R-square 0.621 Sample Size 69
Notes: ***,**,* represent that the coefficients are significantly different from 0 at the 0.001, 0.005, 0.1 levels, respectively.
IV. Conclusions and Suggestions
Along with the globalization and liberalization of Taiwan’s financial markets, the demands for derivative financial products increase tremendously, leading Taiwan’s futures market to prosper. During the period of 1999-2005, the supply side shrinks gradually in terms of the number of firms although the demand side increases in terms of the annual trading volume of futures contracts. One possible explanation for the above phenomena is that the managerial performance among individual firms in this industry diverges greatly and inefficient firms are driven out of the market. Based upon the survey data conducted by TAIFEX during the period of 2002-2004, this paper first applied the DEA technique to evaluate the efficiency of Taiwan’s FCMs, and then the Tobit censored regression was used to investigate the determinates of the efficiency of FCMs in Taiwan.
The efficiency-evaluation results show that the mean overall technical efficiency of FCMs is 0.719, implying that they could have reduced inputs by 28.1 percent, on average, and still have produced the same level of outputs. This shows that most FCMs in Taiwan have an ample space to improve. The mean purely technical
efficiency measures is 0.823 while the mean scale efficiency measures is 0.877. It implies that, by adjusting FCM’s operating size to optimal scale, the mean overall technical efficiency can increase from 0.719 to 0.823. The rest of the technical inefficiency, 17.7%, requires improvement in managerial performance to reduce resources wasted. It is also found that the number of FCMs operating in DRS region decreased gradually while the number of FCMs operating in CRS region increased gradually during the period of 2002-2004, but most FCMs are still operating in DRS region. The regression result shows that firm size has a positive, but in a decreasing rate, impact on technical efficiency. The electrical trading ratio is positively related with technical efficiency. Out-trade loss to total revenues ratio has a negative impact on technical efficiency. The number of introducing brokers and technical efficiency are negatively related. FCMs with securities industry background are more technically efficient than those without.
According to the empirical evidence, this paper could provide some implications and suggestions for FCMs in Taiwan to improve their efficiency. First, since most of the FCMs are still located in DRS region and technical efficiency can enhance with expansion of the firm size, it may provide small-to-medium-sized FCMs with incentives for M&As to expand their operational scales. Second, it is suggested that FCMs can encourage their customers to place orders via electrical media by providing incentives, such as discounts on brokerage fee charges. Third, FCMs can invest in on-the-job training to enhance the quality of employees so that the possibility of out-trades loss can be effectively reduced. FCMs with securities industry background can enhance cooperation with their holding securities firms so that they can make good use of clients database to conduct cross-selling strategy.
Acknowledgements
Financial support from the National Science Council under NSC 94-2416-H-004-043 is acknowledged.
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