A profit difference decomposition model for measuring group performance: an application to Chinese and Taiwanese commercial banks
•We develop a cross-group decomposition of profit change model based on empirical index numbers and indicators.•Our group-based profit difference model can compare groups with heterogeneous production technologies and local currencies.•We examine the source of profit variation across banking groups...
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| Published in: | Omega (Oxford) 2023-10, Vol.120, p.102899, Article 102899 |
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| Main Authors: | , , |
| Format: | Article |
| Language: | eng |
| Subjects: | |
| Online Access: | Get full text |
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| Summary: | •We develop a cross-group decomposition of profit change model based on empirical index numbers and indicators.•Our group-based profit difference model can compare groups with heterogeneous production technologies and local currencies.•We examine the source of profit variation across banking groups in Taiwan and China.•The higher profits of Chinese city banks mainly result from their better performance in price-related effects.•Taiwanese banks have a superior competitive advantage associated with their production efficiency and technology.
This research develops a new group-based profit difference model for comparing profit performance at the group level with heterogeneous production technology and currencies. The proposed model can fully measure component effects that contribute to cross-group profit variation and also explicitly accounts for the contribution of the exchange rate to the profit difference between groups. We employ panel data of 30 Taiwanese banks and 43 Chinese city banks over the period 2013-2019 as the two banking groups, showing empirical results that the latter perform better than the former in profit creation. The higher profits of the Chinese banks mainly are due to their better performance in price-related effects, which offset their worse performance in quantity-related effects. While Chinese city banks enjoy favorable price environments for activity expansion in China's high-growth financial market, Taiwanese banks are good at allocating proper input quantity to obtain better technical efficiency and technology. Findings also imply that Chinese city banks can further increase their profit gap by promoting productivity improvement, whereas Taiwanese banks could take advantage of China's favorable financial market and raise their cross-border investment. |
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| ISSN: | 0305-0483 1873-5274 |