Value Creation Performance Evaluation for Taiwanese Financial Holding Companies during the Global Financial Crisis Based on a Multi-Stage NDEA Model under Uncertainty

Abstract

In this paper, we use the multi-stage network slacks-based measure model under uncertainty to evaluate the performance of Taiwanese financial holding companies (FHCs) from 2007 to 2012. We conceptualize the value creation process to be a two-stage framework, as the profitability and the marketability stages with a serial-linkage relationship, in order to solicit more information from the value creation process of FHCs. Under this framework, the profitability stage can be further divided into banking, insurance, and securities profitability sub-stages. In addition, we further extend the proposed model mentioned above to not only incorporate the NPLs as the undesirable output in the banking profitability stage but also use the fuzzy set approach to process its uncertainty. Results indicate that the discriminatory ability of our model is higher when we simplify the variables in the model specification. We also find that all Taiwanese FHCs in that particular period were “inefficient performers”, which is mainly attributed to the weak profitability performance, especially in banking service. We postulate that the global financial crisis, the US subprime crisis in particular, had a negative effect on the value creation performance of Taiwanese FHCs; however, they gradually recovered and improved their performance after the crisis.