Performance Measurement of Taiwan’s Commercial Banks

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Performance measurement of Taiwan’s commercial banks

Chien-Ta Ho

Department of International Trade, Lan-Yang Institute of Technology, Taiwan, and

Performance measurement

425

Received October 2003 Revised April 2004 Accepted April 2004

Dauw-Song Zhu

Department of Business Administration, National Don-Hwa University, Taiwan

Keywords Performance measures, Banking, Labour efficiency, Organizational effectiveness, Data analysis, Taiwan Abstract Most previous studies concerning company performance evaluation focus merely on operational efficiency. Operational effectiveness, however, which might directly influence the survival of a company, is usually ignored. As a result, this paper presents a study which uses an innovative two-stage data envelopment analysis model that separates efficiency and effectiveness to evaluate the performance of 41 listed corporations of the banking industry in Taiwan. The empirical result of this paper is that a company with better efficiency does not always mean that it has better effectiveness. There is no apparent correlation between these two indicators.

Introduction Data envelopment analysis (DEA) is a mathematical programming approach for characterizing the relationships among multiple inputs and multiple outputs and has been a proven way to measure bank performance (Charnes et al., 1990; Seiford and Zhu, 1999). There is a wealth of literature on both basic and applied research in DEA. Since the DEA model was proposed by Charnes et al. (1978), it has been widely used in non-profit organizations like educational institutions (Sarrico and Dyson, 2000), hospitals (Harris et al., 2000), and police forces (Thanassoulis, 1995). Subsequently, applications have appeared in profit organizations, such as the banking...