Dynamic impacts of market power and diversification on bank efficiencies in Taiwan

This article adopts a panel error-correction model to explore dynamic impacts of diversification and market power on bank efficiencies by utilizing the pooled mean group and mean group estimators. The sample comprises unbalanced panel data of 22 Taiwanese-listed domestic commercial banks over the period 1997 to 2010. Empirical results show divergence of long- and short-run effects of market power and diversification on bank efficiencies. The effect of market power of loans exerts a significantly positive effect on technical efficiency in the long run while coexisting with a negative short-run relationship, as well as with the long- and short-run association between diversification and cost efficiency.