A metafrontier study of securities broker and dealer efficiency under zero-sum gains

Transcription

1 Chn-Y Fang (Tawan), Jn-L Hu (Tawan) Investent Manageent and Fnancal Innovatons, Volue 6, Issue 3, 2009 A etafronter study of securtes broer and dealer effcency under zero-su gans Abstract Ths paper studes the broer and dealer (B&D) effcency across groups of securtes frs under zero-su gans (ZSG) fraewor fro the concept of a etafronter. Exstng studes that estate the fr-level effcency usng conventonal data developent analyss (DEA) neglect the 00% aret share restrcton. The eprcal fndngs suggest that the conventonal DEA odel underestates the effcency of neffcent securtes frs n Tawan, as copared to the ZSG-DEA. The output-orented technology gap rato of a etafronter ndcates that the foregn ownershp for has a sgnfcantly postve pact on effcency n Tawan. The fnancal holdng copanes (FHC) n Tawan show nsgnfcantly negatve effects on ther securtes subsdares. Specalzed securtes broerage frs (SBFs) have sgnfcantly hgher effcency than on-fhc s ntegrated securtes frs (ISFs). These results prove that the fnancal refor trggered by the governent s not able to prove B&D effcency n the securtes ndustry. Keywords: etafronter, zero-su gans, technology gap rato, ownershp. JEL Classfcaton: D24, G24, G2, C6, C6. Introducton Securtes frs serve as broers nteredatng between fund supplers and busness at a low cost and wth a axu degree of effcency nvolvng the tradng of stocs n the secondary aret n Tawan. These frs generally receve the largest percentage of ther revenue fro broerage cossons on stocs transactons. Hence, how to axze aret shares of stocs s the ajor objectve of each securtes fr n Tawan. Maret share s a frequently dentfed goal of corporate anageent (Mueller, 983). Research addresses on the relatonshp between aret share and effcency for the Hungaran corporate sector (Halpern and Körös, 200). The applcaton of odern technologes has ade t possble to trade securtes va telephone or Internet, nducng the securtes frs to nvest ore n electronc trade technologes n order to grab ore shares of traded stocs. In Tawan and n the UK, the stoc aret value to GDP s approxately 40. There s a hgher turnover rato n ters of tradng value for the Tawan stoc aret copared to other ajor stoc arets. The total tradng aount n Tawan s securtes aret n 2006 acheved T$24,205 bllon ncludng 98.7% n stocs (n dealng and broerage), 0.2% n TDRs, 0.72% n warrants, 0.3% n ETFs, and 0.0% n others, respectvely. Hence, the securtes frs n Tawan pursue the axzaton of aret share n ters of stoc dealng and broerage to reap ore revenue and donate the stoc aret of the broer and dealer (herenafter B&D). In June 989, the Tawan Stoc Exchange Corporaton (TWSE) accepted the applcaton of foregn securtes frs to Chn-Y Fang, Jn-L Hu, set up branches n Tawan to engage n doestc broerage busness as well as nternatonal securtes transactons. The securtes ndustry n Tawan has becoe ncreasngly copettve, because of the establshent of fnancal holdng copanes (FHCs) n In other words, ths hghly copettve envronent s close to zero-su gans (Lns et al., 2003) n whch securtes frs want to expand ther aret share wthn the 00%-su constrant. Especally n the short ter, the aret sze s fxed such that the su of stoc aret share of B&D s 00%. In the securtes ndustry, an ndvdual SF pursues the goal of aret share axzaton by nnovatng tself as an e-broer or e-trader. Hence, securtes frs try to expand ther aret shares by ther nvestents. Maret share s the tradng aount n broerage and propretary tradng of an ndvdual fr dvded by the total tradng aount of all securtes broers and dealers. The effcency score s easured by the econoc perforance usng the productve effcency of obtanng axal output levels. The frst an objectve of ths study s to easure the fr-level B&D effcences of securtes frs (herenafter SFs), under a zero-su gans fraewor, whch easure producton effcency representng axu B&D aret share fro a gven fxed assets, fnancal captal, as well as general and adnstratve expenses. The second objectve of ths paper s to exane the nfluence of the ownershp structure on effcency, and fnd out the deternants of effcency n the securtes ndustry. Under B&D aret share copetton, gven the fact that a securtes fr s aret share gan s another s aret share loss, the conventonal BCC data envelopent analyss (herenafter BCC-DEA) odel (Baner, Charnes and Cooper, 984) neglects the 00% aret share restrcton. Lns et al. (2003) ntroduce a zero-su gans data envelopent analyss (herenafter ZSG- 25

2 Investent Manageent and Fnancal Innovatons, Volue 6, Issue 2, 2009 DEA) odel, whereby the su of outputs s constant, n order to assess the ranng of partcpant countres n the Sdney 2000 Olypc Gaes based on sngle aggregated edals. Ths paper heren utlzes the ZSG-DEA odel to easure the B&D effcency wth a consderaton of a constant su of output. The nuber of securtes frs totals 92 n Tawan s aret ncludng ntegrated securtes frs (herenafter ISFs), whch perfor varous ajor servces ncludng broerage actvty, underwrtng servces, and propretary tradng, and securtes broerage frs (herenafter SBFs). Foregn securtes frs were pertted to set up branches n Tawan n 989. Advanced technology accopanes foregn drect nvestent to enter the host country, ang foregn frs ore effcent than doestc copettors (Dels and Lour, 2002). We defne the foregn-afflated SFs for those branches of ultnatonal SFs n Tawan snce 989, n contrast to the doestc SFs. The fnancal holdng copanes (herenafter FHC) had been establshed durng , but only allowng the ISFs to be the securtes subsdary of an FHC accordng to the Fnancal Holdng Copany Act n Tawan. The nuber of ISFs ncreased fro 39 n 990 to 48 n 2006; the nuber of foregn-owned securtes frs ncreased to 8 n 2006; the nuber of FHC-afflated ISFs was 4 n 2006; however, the nuber of SBFs decreased fro 373 n 990 to 44 n Hence, a queston s rased of whether the polcyaers prohbt the SBFs fro beng a subsdary of FHC, because they are neffcent or sall-szed. Therefore, ths paper ncludes SBFs, whose average asset value s T$0.5bn n 2006 whch s relatvely saller than the average asset value of ISFs (T$3.2bn), and ISFs as the dataset of ths odel. Ths paper utlzes the etafronter to DEA approach developed by Rao et al. (2003) n order to study the pact of foregn ownershp, the ebershp n an FHC, and the varety of servces on effcency. All securtes frs are arranged nto four groups n ths paper. Foregn-owned securtes frs ncludng foregn-owned ISFs and SBFs are the frst group, the subsdares n a fnancal holdng copany are the second group, the non-fhc ISFs are the thrd group, and the doestc SBFs are the fourth group. Avran (999) eploys two DEA odels to easure the effcency and ndcates that DEA analyss s senstve to the choce of varables. However, ths s also a nd of strength n provdng anageentspecfc nforaton as the ethod for provng fr-level effcency. Effcency easureent usng DEA odels fro dfferent perspectves can depend on the decson-ang requreents. Ths s the lttle research, where there are varous groups and securtes frs n each group operatng under an ownershp-specfc technology, to easure 26 effcency wth respect to group fronters and etafronter. The ajorty of Tawan s aret players pursue the axzaton of a stoc s aret share n order to be the leadng securtes frs and attract the attenton of nsttutonal nvestors. Ths paper s organzed as follows: The lterature revew s presented n secton. Secton 2 ntroduces zero-su gans DEA and etafronter fraewors. Secton 3 descrbes data resources and varables. Secton 4 presents eprcal results. The last secton concludes ths paper.. Lterature revew Blundell et al. (999) nvestgate the relatonshp between aret share and nnovaton. Halpern and Körös (200) tae a loo at the ln between aret share and effcency for the Hungaran corporate sector and ndcate a gradual proveent n effcency due to the growng share of sall frs. Avran (999) assues a postve correlaton between change n aret share and change n effcency after a erger and acquston. Al-Obadan (2008) analyzes the effcency by easurng a producton functon representng axu output levels fro a gven nputs, and easures econoc perforance usng the productve effcency of obtanng axal output levels. The lac of fr-level data has ade research on securtes frs very dffcult and rare to see (Goldberg et al.., 99), not to enton any study on sall-szed and specalzed SBFs. Goldberg et al. (99) adopt survey data n a translog ult-product cost functon to exane the econoes of scale and suggest that f the Glass-Steagall restrctons are relaxed, then bans are able to enter the securtes ndustry wth a broerage dvson and see about US$30 llon n revenue. In Tawan the group of SBFs has not receved adequate attenton n exstng studes even though the nuber of SBF s slar wth the nuber of ISFs. Wang et al. (2003) study the effcency of ISFs n Tawan durng usng a DEA odel as well as a Tobt censored regresson and conclude that the pact of a fr s servce concentraton on ts techncal effcency s postve, whch eans that the dverse servces of a fr decrease ts techncal effcency. When the stoc aret s declnng, havng ore branches nstead becoes a burden for anageent and the dversfed coplextes on operatons ae t dffcult for anagers to ae decsons. However, Wang et al. (2003) exclude the dataset of SBFs. Elyasan and Mehdan (995) show that sall bans were ore effcent than large bans n the U.S. durng 979, however, ths fndng becae statstcally nsgnfcant n 986 and suggests that ergers produce lttle gan n effcency to ae equal effcency

3 between sall and large bans. Rhoades and Savage (98) suggest that sall bans can acheve proftablty levels copared to ther larger counterparts, because sall bans cater to a dfferent group of custoers about who they have nforatonal advantages and offer a set of products dfferentated fro those of large bans. On the contrary, Muherjee et al. (200), Baldwn (996) and Mller and oulas (996) support that larger fnancal nsttutons assocate wth the hgher effcency. Ths artcle attepts to easure the effcency score under the 00% aret share constrant and nvestgate the pact of ownershp toward effcency. 2. Zero-su gans DEA and etafronter ethodology 2.. BCC and ZSG DEA odels. DEA s a lnear prograng odel that dentfes an effcent fronter, whch conssts of the effcent decson ang unts (DMUs). Effcent DMUs are those for whch no other DMUs are able to generate at least the sae aount of each output under gven nputs (Charnes et al., 978). Effcency scores reflect the ablty of frs to generate the axu outputs under a gven level of nputs. Ths paper s to easure the fr-level B&D effcences of SFs, under a zero-su gans fraewor, whch easure producton effcency representng axu B&D aret share fro a gven fxed assets, fnancal captal, as well as general and adnstratve expenses Tradtonal BCC-DEA odel. DMU s the object unt that s atteptng to axze ts output. All DMUs n the sae year consttute the reference set to construct the effcency fronter for each DMU. The a of the tradtonal DEA odel s to ae the less effcent object unt at least as effcent as the others by ncreasng ts output. Baner et al. (984) extend the constant returns to scale (CRS) DEA odel to a varable returns to scale (VRS) stuaton. The dual soluton of the tradtonal output-orented BCC-DEA usng dualty expressed by Coell (996) to easure the effcency score θ for DMU s shown as: = Max φ θ φ, λ,..., λ λj j λ j j s. t. φ y y, =,..., M, x x, =,..., K, λ =, j λ,..., λ 0, Investent Manageent and Fnancal Innovatons, Volue 6, Issue 3, 2009 () where φ shows the nverse of effcency score of DMU ; the effcency score θ of DMU s /φ ; s the nuber of DMUs; K and M are respectvely the nuber of nputs and outputs; x j s the aount of the -th nput consued by the j-th DMU; y j s the aount of the -th output produced by the j-th DMU; λ j s each effcent DMU s ndvdual share n the defnton of the target for DMU. The BCC-DEA odel here easures the frlevel effcency score (θ ) n the securtes ndustry. An SF (as a DMU n the DEA odel) pursung ore aret share naturally eans that other SFs lose soe aret share, because the total aret share s 00%. Accordngly, ths constant su of output s unable to use the tradtonal BCC-DEA odel, n whch the output of any gven DMU s not nfluenced by the output of the others, to assess the effcency score. Ths s our otvaton to adopt the ZSG-DEA odel to easure the effcency score of SFs Zero-su gans DEA odel. The ZSG-DEA odel assesses the effcency score provded that the su of outputs s constant. Lns et al. (2003) ndcate that ths s slar to a zero-su gae whereby how uch s won by a player s lost by one or ore of the other players. The equal output reducton strategy s generated to easure the effcency score ( θ = ) for DMU φ n equaton (2) shown below and graphcally represented usng a sple case nvolvng one nput, x, and one output, y, n Fgure : = Max φ θ φ, λ,..., λ y ( φ-) st.. φy λj yj [- ], =,..., M, - (2) x λ x, =,..., K, j j λ =, j λ,..., λ 0, where ter φ s the nverse of effcency score of the ZSG-DEA odel wth φ ; and the effcency score θ of DMU s the nverse of φ (θ =/φ ) n the ZSG-DEA odel. The ter y ( φ -), representng losses of the other DMU j (j ), ust have one DMU to wn y ( φ -) output unts. 27

4 Investent Manageent and Fnancal Innovatons, Volue 6, Issue 2, 2009 = Max φ θ φ, λ,..., λ y ( φ -) st.. φ y y [- ], =,..., M, λj j Y - y λ j j x x, =,..., K, λ =, j λ,..., λ 0, (3) Fg.. Graphcal representaton of the equal output reducton ethod Ths odel here causes soe DMUs to have a negatve output after replacng the output as the reducton coeffcent. A sple exaple n Appendx A llustrates an unreasonable case n whch an equal output reducton under zero-su gans set-up generates a negatve output. Hence, provded that y ( φ-) n ( yj ), =,..., M, ths equal output reducton strategy can apply. To avod ths ajor weaness, Lns et al. (2003) further develop the proportonal output reducton strategy for any gven DMU, by the rato y ( φ -), where Y s the constant su of the Y - y -th output. Thus, DMU needs to wn y ( φ -) output unts, and the losses of the other DMUs are proportonal to ther levels of output. The condton that the su of losses s equal to the gans of DMU stll holds. Fgure 2 represents the ZSG-DEA fronter created by ths proportonal reducton strategy and the BCC-DEA fronter usng a sple case nvolvng one nput and one output. DMU wns y ( φ -) output unts, and losses of other DMUs are proportonal to ther levels of output, whch s y ( φ -) y j ( ). If the output y j of DMU j s larger than those of other DMUs, then the output Y - y y ( φ -) reducton y j ( ) s also larger than others, vce versa. Model (3) substtutes odel (2) Y - y for the proportonal output reducton strategy to easure the effcency score ( θ = ) of φ DMU as: However, Lns et al. (2003) report that t s very labor-consung to obtan results n ths non-lnear prograng proble as well as for a large nuber of varables. The odel s splfed when there s only a sngle output ( =). Appendx A provdes an exaple to explan the coputatonal steps of the proportonal output reducton strategy. Fg. 2. Graphcal representaton of the proportonal output reducton ethod The followng theore holds under a sngle output ZSG-DEA proportonal reducton strategy. Lns Theore (Lns et al., 2003). The target for a DMU to reach the effcency fronter n a ZSG-DEA proportonal output reducton strategy odel equals the sae target n the tradtonal BCC-DEA odel ultpled by the reducton coeffcent (- y( φ -) ). Y - y Owng to ths theore, equaton (4) below holds. y( φ -) φ y = λj yj[- ] Y - y. (4) y( φ -) = φy[- ] Y - y 28

5 The effcency score of the ZSG-DEA odel s obtaned fro equaton (5), due to the fact that the su of total aret share (%) s 00: θ = θ y (00 - y ) + y y (00 - y + ) 2. (5) Lns et al. (2003) also nfer that the value of the weght of DMU s peers (λ ) equals ts value n the tradtonal BCC-DEA odel. Ths ZSG-DEA odel wth the proportonal reducton s only appled on the sngle output for Olypc ranngs. Ths ZSG- DEA odel s then appled to easure effcency score of SFs when the aret share n percentage always sus up to 00 n ters of B&D busness Constructon of the DEA approach to a etafronter and the technology gap rato. Rao et al. (2003) use the DEA approach to construct a etafronter obtaned by poolng all observatons fro all the regons and buld varous regonal fronters so as to analyze the effcences and technology gap rato. Fgure 3 shows the graph of the etafronter functon fro Battese et al. (2004) usng a sple exaple nvolvng one nput, x, and one output, y. Ths paper utlzes the output-orentated DEA odel whch conssts of regons, and observatons of L unts n the -th regon, to construct the regonal fronters as below: / θl = Max φ L φ, λ,..., λ L Fg. 3. Metafronter functon odel L φl λj j L λj j = L λj =, s. t. y y, =,..., M, x x,,..., K, λ,..., λ 0, L Investent Manageent and Fnancal Innovatons, Volue 6, Issue 3, 2009 (6) where = L and L φ s the recprocal of effcency θl wth respect to the G -th regonal fronter. Usng the defnton of output-orentated effcency, equaton (7) expresses the technology gap rato of the -th DMU as follows: TGR φl =. (7) φ Ths paper assesses the effcency under the ZSG fraewor n all observatons and constructs the technology gap rato of the -th DMU under the ZSG odel fro equatons (5) and (7) as below: TGR φ L ZSG =. (8) φ Thus, the effcency under ZSG relatve to the etafronter functon s the product of the effcency relatve to the regonal fronter and thetgr ZSG as follows: θ = θl TGR ZSG. (9) 2.5. The two-stage approach and envronental varables. The two-stage approach (McCarty and Yasawarng, 993; Wang et al., 2003) nvolves solvng a DEA proble n the frst stage and then the effcency obtaned n the frst stage beng regressed upon the envronental varables n the second stage. Soe factors, whch are envronental varables, ay affect the effcency of DMUs. The sgn of the coeffcents of the envronental varables ndcates the drecton of the nfluence, and the standard hypothess tests can be used to easure the strength of the relatonshp. Researchers adopt the Tobt regresson odel nstead of the OLS odel to easure the sgnfcance of the relatonshp. Esho (200) adopts the second-stage regresson to nvestgate the relatonshp between the captal to asset rato, sze, age, and effcency. Muherjee et al. (200) nvestgate the relatonshps between the asset value, the square of asset value, and productvty growth and fnd out that the bgger-szed Aercan bans have sgnfcantly postve nfluences on productvty growth, but nsgnfcant coeffcents on the square of asset value. Dels and Lour (2002) analyze the effcency gans caused by the dverse degree of foregn ownershp n Greece n 997 whch ndcate a postve effect on labor productvty of foregn ownershp. Deyoung and olle (996) fnd out that foregn-owned bans are less proft-effcent than U.S.-owned bans. Elyasan and Mehdan (997) report that 29

6 Investent Manageent and Fnancal Innovatons, Volue 6, Issue 2, 2009 foregn-owned bans are less cost effcent than U.S. bans and even statstcally nsgnfcant. Wheeloc and Wlson (2000) nclude a duy varable to test whether ebershp n a ultban holdng copany affects the probablty of falure. These authors ndcate that f a parent copany njects cash nto a wea subsdary, than a holdng copany ebershp ght lessen the chance of falure. On the other hand, the falure of a prary ban n a holdng copany has soetes led regulators to close all holdng copany ebers. It s an nterestng ssue of ths paper to nvestgate whether the effcency of foregnowned securtes frs or the securtes subsdares of FHCs s better than that of the doestc specalzed securtes frs or not. Ths study exanes the deternants of effcency by regressng on the easured effcency usng the Tobt censored regresson odel. 3. Data and varables 3.. Varables. The paper heren follows the odel developed by Lns et al. (2003) to choose sngle output and ultple nputs to easure effcency. Drae, Hall and Sper (2006) ntroduce a proft-orented odel wth revenue coponents as outputs and cost coponents as nputs n a banng effcency study. Bans capture ther proft axzaton goal by ncreasng revenue and reducng cost. In the securtes ndustry, an ndvdual securtes fr pursues the goal of aret share axzaton by nnovatng tself as an e-broer or e-trader. Thus, ths output-orented ZSG-DEA odel chooses aret share as the sngle output. Drae and Hall (2003) adopt general and adnstratve expenses and fxed assets as the two nputs of the DEA odel. Berger and Mester (997) ndcate that another portant aspect of effcency easureent s the treatent of fnancal captal. A ban s avalable fnancal captal to absorb possble losses helps reduce ts nsolvency rs. Accordngly, ths study adopts fxed assets, n whch the securtes frs ncrease ther fxed assets by nvestng n coputer hardware, fnancal captal, as well as general and adnstratve expenses as the three nputs of the ZSG-DEA odel. To exane the sotoncty between a sngle output and ultple nputs, one can use the ey eleents of producton functons, and subsequently assess the effcency usng DEA. Ths study has calculated the postve correlaton coeffcents (0.9, 0.9, and 0.75, respectvely) between a sngle output and ultple nputs and t allows us to easure effcency usng DEA odel Envronental varables. Followng the wor by Muherjee et al. (200) and Esho (200), ths study chooses 5 factors to perfor a second-stage econoetrc analyss. The explanatory varables are dscussed next. SIZE defnes the scale of operaton as the total assets. Baldwn (996) suggests that sze, as defned by total assets, s expected to ncrease productvty, because larger-szed frs ay be ore effcent. Mller and oulas (996) report a sgnfcantly postve correlaton between ban sze (total assets) and pure techncal effcency, but Avran (999) provdes evdence that there s no sgnfcant correlaton between ban sze and overall operatng effcency durng Includng the total assets as one of deternants of effcency s the ey ssue n ths paper. Regulators consder captal adequacy as an portant ndcator when evaluatng the perforance of a fnancal nsttuton. Esho (200) adopts the second stage regressons to nvestgate the relatonshp between the captal to asset rato, sze, age, and effcency. Accordngly, ths paper also selects Captal-Asset Rato (CAR) and age (heren the year of servces; YS) as two explanatory varables n the analyss. Moreover, the ore branches a securtes fr has, the ore convenent t s for custoers even though ore branches also nvolve hgher expenses for a securtes fr. Ths odel ncludes the nuber of branches (Branch) as one of the factors toward B&D effcency. Ths study consders four groups of securtes frs: Foregn-owned securtes frs ncludng foregnowned ISFs and SBFs are the frst group, the subsdares n a fnancal holdng copany are the second group, the non-fhc ISFs are the thrd group, and the doestc SBFs are the fourth group. Tang the doestc SBFs as the benchar, ths regresson equaton ncludes three duy varables for each of the other three groups Data. Ths study collects a cross-sectonal dataset durng 2006 ncludng 92 securtes frs n Tawan. Maret share s easured by the rato of fr-specfc tradng aount n broerage and dealng dvded by total tradng aount of securtes broers and dealers for The fr-level data for the varables n ths odel are fxed asset value, general expenses, fnancal captal, total assets, year of servces, tradng volue, the nuber of branches, and ownershp structure. All varable data are fro the reports of the Tawan Stoc Exchange Corporaton. Output orentaton s a better choce here, because the obvous a for an ndvdual securtes fr s to try to donate the aret through axzng aret share n Tawan. Table provdes the statstcs of the dataset.

7 Table. Descrptve statstcs of varables a Varable Mean S.D. Mn Max G Foregn-owned securtes group MS FA CA EXP SIZE CAR YS VOL Branch G2 FHC ISFs MS FA CA EXP SIZE CAR YS VOL Branch G3 Doestc non-fhc ISFs MS FA CA EXP SIZE CAR YS VOL Branch G4 Doestc SBFs MS FA CA EXP SIZE CAR Investent Manageent and Fnancal Innovatons, Volue 6, Issue 3, 2009 YS VOL Branch otes:. a All varables are n bllons of T$ dollars except aret share. Maret share s n %. 2. Mean s the average; S.D. s the standard devaton; Mnu s the nu value over the observatons; Maxu s the axu value across the selected observatons. 3. The varables are defned as follows: aret share (MS) s easured n an ndvdual fr s tradng aount n broerage and dealng dvded by total tradng aount n broer and dealer, fxed asset (FA), captal (CA), general expenses (EXP), total asset (SIZE), rato of captal to asset (CAR), year of servces (YS), tradng aount (VOL), nuber of branches (Branch). 4. Results and dscusson 4.. Results of ZSG-DEA and BCC-DEA odels. Ths research adopts the output-orented BCC-DEA (Baner et al., 984) and ZSG-DEA odels (Lns et al., 2003) to assess the B&D effcency of securtes frs. Equatons () and (5) respectvely calculate the B&D effcency of the BCC-DEA and ZSG-DEA odels and are presented n Table 2. Wth the fact that a securtes fr s aret share gan s another s aret share loss, the conventonal DEA odel underestates the effcency of neffcent securtes frs n Tawan, as copared to the ZSG-DEA. Ths study calculates a pared-dfference t test and nonparaetrc Wlcoxon test to deterne whether the effcences of these two odels are sgnfcantly dfferent and Table 2 presents the results of these two tests. The average effcency n the ZSG-DEA odel s statstcally, sgnfcantly hgher than that n the BCC-DEA odel. The gap n effcency between effcent and neffcent securtes frs under a ZSG fraewor s sgnfcantly less than that under the conventonal odels. Hence, wth the objectve of axzng B&D aret share, the effcent securtes frs need to develop ore aretng strateges and ntroduce ore technques to antan ther leadng role n the aret. Because a securtes fr s aret share gan s another s aret share loss, once one securtes fr reaps ore aret share, the B&D effcency of ths securtes fr would ae uch progress and the other securtes frs would relatvely decrease ther effcency. The effcency gap between effcent SFs and neffcent SFs n the ZSG-DEA odel s relatvely less than the one n the conventonal BCC-DEA odel. Table 2. Coparsons of effcences between BCC-DEA and ZSG-DEA Group L BCC ZSG BCC-ZSG Pared t Wlcoxon Mean Mean Dfference t rato z value G Foregn-owned securtes ** -.54 G2 FHC ISFs *** -3.27*** 3

8 Investent Manageent and Fnancal Innovatons, Volue 6, Issue 2, 2009 Table 2 (cont.). Coparsons of effcences between BCC-DEA and ZSG-DEA Group L BCC ZSG BCC-ZSG Pared t Wlcoxon G3 Doestc non-fhc ISFs *** -3.96*** G4 Doestc SBFs *** Overall *** -3.5*** otes: H: ean (BCC-DEA ZSG-DEA) < 0; *** and ** ndcate sgnfcance at the 5% and 0% levels, respectvely Effcences and technology gap rato. Table 3 provdes average DEA effcences fro the group fronter and etafronters. The technology gap rato of the foregn-owned securtes group s 0.97, whch s the hghest rato across these 4 groups. Ths eans that, gven nputs, the potental outputs for the foregn-owned securtes group s technology s 97 percent of that represented by the etatechnology. The technology gap rato of the doestc specalzed securtes broerage group s 0.53, whch s hgher than the rato of the non-fhc ntegrated securtes group. Ths eans that the technology n the SBFs s hgher than that n the non-fhc ISFs. Ths eprcal result s consstent wth Wang et al. (2003) and Rhoades and Savage (98). The effcent specalzed SBFs n Tawan have ade efforts n the servces of ther top-ter VIP custoers n order to acheve a hgher effcency even wthout dverse servces, such as underwrtng and propretary tradng. FHC-owned ISFs are the second hghest group n ters of the technology rato. However, unle ban holdng copanes n U.S., the fnancal holdng copany n Tawan s a fnancal nsttuton only allowng the nvestent and anageent n ther dfferent type of subsdares wthout busness operatons accordng to the Fnancal Holdng Copany Act. Whether a parent copany le Tawan s FHC has a postve effect on ts securtes subsdares n ters of effcency s an nterestng ssue. Therefore, ths paper further nvestgates the nfluence of ownershp on effcency. Table 3. Estates of effcences and technology gap ratos by group Group L Mean S.D. Mnu Maxu G Foregn-owned securtes Effcency wth respect to the group fronter (G) G2 FHC ISFs G3 Doestc non-fhc ISFs G4 Doestc SBFs G Foregn-owned securtes Technology gap rato (TGR) G2 FHC ISFs G3 Doestc non-fhc ISFs G4 Doestc SBFs G Foregn-owned securtes Effcency under ZSG wth respect to the etafroter G2 FHC ISFs G3 Doestc non-fhc ISFs G4 Doestc SBFs All securtes frs Deternants of effcency. The research now eploys the two-stage approach to exane the nfluence of envronental varables on the effcency as follows: Effcency = f (SIZE, CAR, YS, VOL, Branch, D foregn, D FHC, D Local IS ), (9) where SIZE s the asset value of the securtes fr, CAR s the rato of captal to assets, YS s the years of servces exstng n the securtes aret, VOL s the total tradng aounts, and Branch s the nuber of branches. Tang the doestc SBFs as the benchar, ths regresson 32 equaton ncludes three duy varables for each of the other three groups. (D foregn, D FHC, D Local IS ) = (, 0, 0) represents the foregn-owned securtes group, (D foregn, D FHC, D Local IS ) = (0,, 0) s the group of subsdares n an FHC, and (D foregn, D FHC, D Local IS ) = (0, 0, ) eans the thrd group of non-fhc ISFs. Table 4. Tobt regresson results Dependent varable: Effcency under ZSG-DEA Independent varable Model Model 2 SIZE * (0.003) ** (0.003)

9 Table 4 (cont.). Tobt regresson results Dependent varable: Effcency under ZSG-DEA Independent varable Model Independent varable CAR YS VOL Branch DuyForegn DuyFHC DuyLocal IS σ 0.30 (0.09) (0.005) 0.00*** (0.000) (0.006) 0.9* (0.2) (0.2) -0.2** (0.082) (0.02) *** (0.000) *** (0.08) ** (0.073) (0.02) Log lelhood functon Pseudo R-square ote:. ubers n the parentheses are standard devatons. 2. ***, **, and * ndcate sgnfcance at the %, 5%, and 0% levels, respectvely. Table 4 presents the result of the second-stage Tobt regresson odel. The total aount of assets (SIZE) has a sgnfcantly negatve effect on ZSGeffcency. Ths result s consstent wth Elyasan and Mehdan (995) and Rhoades and Savage (98). The large-szed securtes frs, on the contrary, do not necessarly have hgher effcency. Accordng to Table, the respectve average asset value of foregn-owned securtes frs and doestc SBFs s T$2.29bn and T$0.54bn, relatvely saller than the other groups. However, the result of the second-stage regresson shows that these two groups of securtes frs have sgnfcantly hgher effcency than the other groups. The sall-szed securtes frs do have a postve pact on effcency. Total tradng aount (VOL) has a sgnfcantly postve pact on ZSG-effcency. Ths eprcal fndng suggests that securtes frs are able to acheve hgher effcency when the stoc aret s boong, or when an ndvdual securtes fr surpasses copettors n ts dealng or tradng volue. The result also shows a sgnfcantly postve effect of foregn ownershp on effcency, whch s consstent wth Dels and Lour (2002). They ndcate that the hgher the degree of foregn ownershp s, the ore advanced the technology s that wll be transferred and the ore effcent the producton wll be. A fully foregn-owned afflate s the ost effcent, snce the parent fr has no nhbton to Investent Manageent and Fnancal Innovatons, Volue 6, Issue 3, 2009 transfer ts top technology to t. Ths result further confrs the trend that there was a contnuous strea of prestgous foregn-afflated securtes frs that establshed branches n Tawan durng the early 2000s, ncludng Deutsche Securtes Asa, Lehan Brothers, HSBC Securtes Asa, and Macquare Securtes (acqurng IG Securtes n Tawan). D Local IS has a sgnfcantly negatve relatonshp wth effcency copared wth the group of SBFs. Ths result suggests that the polcyaers ay re-consder not prohbtng SBFs fro beng the subsdares of FHCs. The other two varables, the captal to asset rato and years of servces, are nsgnfcantly postve to effcency. Both the nuber of branches and the ebers of FHCs have an nsgnfcant negatve effect on effcency. We ot the nsgnfcant varables fro odel and present the results of odel 2 n Table 4. The aboveentoned fndngs show further sgnfcance at the % and 5% levels, respectvely. Ths eprcal result shows that the strct entry regulaton and FHC ownershp of securtes frs are adversely affectng Tawan s securtes aret developent and effcency of securtes frs. Concluson Ths paper utlzes the DEA approach of etafronter to nvestgate the B&D effcences of securtes frs under the ZSG fraewor, exane the effect of the ownershp for on ZSG-effcency, and fnd out the deternants of effcency n the securtes ndustry. We collect the cross-sectonal populaton of 92 securtes frs n Tawan n 2006, ncludng the sall-szed SBFs whch current researches studes have gnored. In order to accelerate the nternatonalzaton and lberalzaton of the doestc captal aret, the Mnstry of Fnance n Tawan launched ntegrated securtes frs n May 988. Foregn securtes frs were pertted to set up branches n Tawan n 989. The launch of FHCs began n The eprcal fndngs fro the technology gap rato of the etafronter and the second-stage regresson are that both the group of foregn-owned securtes frs and the group of SBFs have sgnfcantly postve pact on B&D effcency. Even though the current regulaton n Tawan prohbts specalzed securtes frs fro beng the subsdares of an FHC, the SBFs show a hgher effcency. The effcent specalzed SBFs n Tawan have ade efforts n the servces of ther top-ter VIP custoers even wthout dverse servces, such as underwrtng and propretary tradng. The foregn-owned securtes frs have taen advantage of ther nternatonal reputaton and nvestent nowledge fro global research teas to attract ore custoers and ax- 33

10 Investent Manageent and Fnancal Innovatons, Volue 6, Issue 2, 2009 References ze aret share usng less expendture. Ths result further confrs the trend that there was a contnuous strea of prestgous foregn-owned securtes frs that establshed branches n Tawan durng the 2000s. Future research could utlze the panel dataset to further confr ths fndng and suggest to polcyaers to nclude sall and specalzed securtes frs as ebers of FHCs.. Al-Obadan, Abdullah M. (2008) Effcency effect of drect lendng controls: an eprcal study of the Gulf Cooperaton Councl countres, Investent Manageent and Fnancal Innovatons, 5, pp Avran,.K. (999) The evdence on effcency gans: the role of ergers and the benefts to the publc, Journal of Banng and Fnance, 23, pp Baldwn, J. (996) Productvty growth, plant turnover and restructurng n the Canadan anufacturng sector n Mayes, D. (ed), Sources of Productvty Growth, Cabrdge Unversty Press, Cabrdge. 4. Baner, R.D., Charnes, A. and Cooper, W.W. (984) Soe odels for estatng techncal and scale effcences n data envelopent analyss. Manageent Scence, 30, pp Battese, G.E. and Rao, D.S.P. (2002) Technology gap, effcency and a stochastc etafronter functon, Internatonal Journal of Busness and Econocs,, pp Battese, G.E., Rao, D.S.P. and O Donnell, C.J. (2004) A etafronter producton functon for estaton of techncal effcences and technology gaps for frs operatng under dfferent technologes, Journal of Productvty Analyss, 2, pp Berger, A.. and Mester, L.J. (997) Insde the blac box: what explans dfferences n the effcences of fnancal nsttutons? Journal of Banng and Fnance, 2, pp Blundell, R., Grffth, R. and Reenen, J.V. (999) Maret share, aret value and nnovaton n a panel of Brtsh anufacturng frs, Revew of Econoc Studes, 66, pp Charnes, A., Cooper, W.W. and Rhodes, E. (978) Measurng the effcency of decson ang unts. European Journal of Operatonal Research, 2, pp Deyoung, R. and olle, D.E. (996) Foregn-owned bans n the Unted States: earnng aret share or buyng t? Journal of Money, Credt and Banng, 28, pp Dels, S. and Lour, H. (2002) Foregn ownershp and producton effcency: a quantle regresson analyss, Oxford Econoc Papers, 54, pp Drae, L. and Hall, M.J.B. (2003) Effcency n Japanese banng: an eprcal analyss, Journal of Banng and Fnance, 27, pp Drae, L., Hall, M.J.B. and Sper, R. (2006) The pact of acroeconocs and regulatory factors on ban effcency: a non-paraetrc analyss of Hong Kong s banng syste, Journal of Banng and Fnance, 30, pp Elyasan, E. and Mehdan, S. (995) The coparatve effcency perforance of sall and large US coercal bans n the pre- and post-deregulaton eras, Appled Econocs, 27, pp Esho,. (200) The deternants of cost effcency n cooperatve fnancal nsttutons: Australan evdence, Journal of Banng and Fnance, 25, pp Goldberg, L.G., Hanwec, G.A., Keenan, M. and Young, A. (99) Econoes of scale and scope n the securtes ndustry. Journal of Banng and Fnance, 5, pp Halpern, L. and Körös, G. (200) Effcency and aret share n the Hungaran corporate sector, Econocs of Transton, 9, pp Lns, M.P.E., Goes, E.G., Soares de Mello, J.C.C.B. and Soares de Mello, A.J.R. (2003) Olypc ranng based on a zero su gans DEA odel, European Journal of Operatonal Research, 48, pp McCarty, T.A. and Yasawarng, S. (993) Techncal Effcency n ew Jersey School Dstrcts, n Fred, H.O., Lovell, C.A.K. and Schdt, S.S. (ed), The Measureent of Productve Effcency: Technques and Applcatons, Oxford Unversty Press, ew Yor, pp Mller, S.M. and oulas, A.G. (996) The techncal effcency of large ban producton, Journal of Banng and Fnance, 20, pp Mueller, D.C. (985) Mergers and aret share, Revew of Econocs and Statstcs, 67, pp Muherjee, K., Ray, S.C. and Mller, S.M. (200) Productvty growth n large U.S. coercal bans: the ntal post-deregulaton experence, Journal of Banng and Fnance, 25, pp Rao, D.S.P., O Donnell C.J. and Battese G. (2003) Metafronter functons for the study of nter-regonal productvty dfferences, CEPA Worng Paper, o. /2003, School of Econocs, Unversty of Queensland, Brsbane. 24. Rhoades, S.A. and Savage, D. (98) Can sall bans copete? Baners Magazne, Jan-Feb., pp Wang, K.L., Tseng, Y.T. and Weng, C.C. (2003) A study of producton effcences of ntegrated securtes frs n Tawan. Appled Fnancal Econocs, 3, pp Wheeloc, D.C. and Wlson, P.W. (2000) Why do bans dsappear? The deternants of US ban falures and acqustons, Revew of Econocs and Statstcs, 82, pp