Bank Ownership and Performance in Taiwan: Do Politics Matter?

Lin, J. C. & Sum, V. (2012). Bank ownership and performance in Taiwan: Do politics matter? Journal of Finance and Accountancy, 10, 12-30.

20 Pages Posted: 14 Mar 2012 Last revised: 25 Sep 2012

Jung-Chu Lin

Takming University of Science and Technology - Department of Banking and Finance

Vichet Sum

University of Maryland Eastern Shore - School of Business and Technology

Date Written: March 12, 2012

Abstract

Using a panel of Taiwanese bank data over the period from 1997 to 2010, this paper conducts a joint analysis to examine the static, selection, and dynamic effects of ownership on bank performance. Simultaneously, to determine whether politics have a significant effect on the performance of public banks, a dummy explanatory variable that represents a pan-public bank in a major election year is also included. The results indicate that both the pure-public banks and the private banks experiencing mergers and acquisition (M&A) significantly outperform the pure-private banks in most performance measures (static and selection effects); private banks experiencing M&A have consistently ascending NPL ratios in both the short and long run following the M&A, yet four other performance measures display a short-term improvement but a long-term deterioration after the M&A (dynamic effects). Public banks undergoing privatization have particularly poor loan growth rates, which improve significantly following privatization (selection and dynamic effects). All of the performance measures of privatized public banks present short-term deterioration but long-term improvement following privatization. Banks participated or acquired by foreign banks perform significantly worse than the pure-private banks in all five performance measures (selection effects), yet have all measures show short term deterioration but long-term improvements following the ownership change; this result indicates that foreign participation and acquisitions have a positive effect on bank performance. Finally, the pan-public banks have ascending NPL ratios in the major election years indicating that politics does matter.

Keywords: Bank, Ownership, Performance, Privatization, M&A, Foreign, Taiwan

JEL Classification: G21, G32, G34

Suggested Citation

Lin, Jung-Chu and Sum, Vichet, Bank Ownership and Performance in Taiwan: Do Politics Matter? (March 12, 2012). Lin, J. C. & Sum, V. (2012). Bank ownership and performance in Taiwan: Do politics matter? Journal of Finance and Accountancy, 10, 12-30. . Available at SSRN: https://ssrn.com/abstract=2020684

Jung-Chu Lin

Takming University of Science and Technology - Department of Banking and Finance ( email )

No. 56, Sec. 1, Huanshan Rd., Neihu District,
Taipei City, 11451
Taiwan
886-2-26585801 (Phone)

Vichet Sum (Contact Author)

University of Maryland Eastern Shore - School of Business and Technology ( email )

2105 Kiah Hall
Princess Anne, MD 21853
United States
410-651-6531 (Phone)
410-651-6529 (Fax)

HOME PAGE: http://www.umes.edu/bma/Sum.html

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