Do financial reforms improve the performance of financial holding companies? The case of Taiwan

We examine the performance of financial holding companies (FHCs) in Taiwan after the financial reform that removes the separation of banking, securities, insurance, and other financial services. Using data envelopment analysis, we find that FHCs fail to improve technical efficiencies in the post-reform era. They also do not outperform independent commercial banks after the financial reform. Lower technical efficiency caused by excess operating expenses appears to be the primary source of inefficiency. While scale efficiency may improve as FHCs grow larger, the benefits are marginal and insufficient to offset the potential costs of organizational diseconomies. Our findings suggest that increasing the size and scope of financial activities alone do not necessarily improve the performance of financial firms.<br />