An estimation of X-inefficiency in Taiwan's banks

Abstract

This paper employs data envelopment analysis to investigate the effects of X-inefficiency on Taiwan's banking industry. A modified measure to examine bank efficiency is proposed and it is found that banks' X-inefficiency has substantially dropped off in Taiwan over the last 10 years, falling from an average X-inefficiency magnitude of 3.9% in 1988 to 2.0% in 1997. Banks did improve their relative abilities to both maximize outputs and minimize inputs between ex post and ex ante of 1990s. The results obtained in this research may affirm the validity of banking deregulation policy in Taiwan.