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COMPETITIVE ISSUES IN THE TAIWANESE BANKING INDUSTRY: MERGERS AND UNIVERSAL BANKS
Author(s) -
YU Peiyi
Publication year - 2003
Publication title -
the developing economies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.305
H-Index - 30
eISSN - 1746-1049
pISSN - 0012-1533
DOI - 10.1111/j.1746-1049.2003.tb00574.x
Subject(s) - economies of scope , economies of scale , consolidation (business) , profitability index , business , market power , mergers and acquisitions , profit (economics) , portfolio , monetary economics , leverage (statistics) , economics , financial system , market economy , finance , microeconomics , marketing , machine learning , computer science , monopoly
This paper investigates scale economies and scope economies in the Taiwanese banking system, looking beyond the market‐power (MP) and efficient‐structure (ES) hypotheses. Given the existence of overall economies of scale and the positive value of expansion path sub‐additivity, we conclude that there might be large increases in profits following mergers. Moreover, since the profit‐structure relationship after financial reform is determined by the relative‐market‐power hypothesis, this consolidation trend will not necessarily decrease the social benefit for Taiwanese consumers. With regard to scope economies and product‐specific economies of scale, we are unable to recommend whether Taiwanese banks should develop as specialized banks or diversified banks in the future. Finally, we find that risk indicators play an important role in explaining the observed variation in bank profitability, and present evidence that default risk and leverage risk have negative effects on the profits of banking, although the effect of portfolio risk is uncertain.