The Cost Structure and Productivity of the SME Banks in Taiwan

The objective of the paper is to investigate the changes of cost structure and productivity growth for seven SME banks in Taiwan during 1986-1994. The translog system of equations are estimated jointly by using the Iterative Zellner Efficient method. Since there was dramatic structural change in the Taiwan banking system during this period, specifically the impact from the deregulation of new banks opening in 1991, we divide the sample period into two subperiods, i.e. 1986-1990 and 1991-1994 and focus our empirial analysis on the changes in the cost structure of these seven banks in these two subperiods, In general, the empirical results indicate that these seven SME banks have improved their productivity after the deregulation allowing new bank openings.