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IMDS
108,7
988
Received 29 February 2008
Revised 7 May 2008
Accepted 29 May 2008
Industrial Management & Data
Systems
Vol. 108 No. 7, 2008
pp. 988-1004
q Emerald Group Publishing Limited
0263-5577
DOI 10.1108/02635570810898035
Measuring online stockbroking
performance
Chien-Ta Bruce Ho
Institute of Electronic Commerce, National Chung Hsing University,
Taichung, Republic of China, and
K.B. Oh
Graduate School of Management, La Trobe University, Melbourne, Australia
Abstract
Purpose – This paper aims to present a study which uses an innovative two-stage data envelopment
analysis (DEA) model that separates efficiency and effectiveness to evaluate the performance of 28
online stockbrokers in Taiwan from 2003 to 2005.
Design/methodology/approach – The approach is based on two-stage DEA.
Findings – The results show that seven companies are CCR-efficient in their operating efficiency;
five companies are CCR-efficient operating effectiveness and only two companies are CCR-efficient
both in operating efficiency and effectiveness. There is no apparent correlation between efficiency and
effectiveness.
Research limitations/implications – This paper presents a two-stage DEA study to investigate
the efficiency and effectiveness in the online stockbroking sector. The online stockbroking business is
a development from the integration of the internet and the stock trading. As the stock brokerage
industry is undergoing a rapid change due to the proliferation of the internet, analyzing the relative
efficiency and effectiveness of online stockbrokers is important for management to understand,
monitor and sustain performance.
Originality/value – The originality of this paper is in the use of a new conceptual framework to
assess the performance of online stockbrokers in Taiwan. This study uses the two-stage DEA in
conjunction with return on assets ratio, which is widely used in financial analysis, to define and assess
performance in the framework.
Keywords Data analysis, Stock markets, Cost effectiveness, Online operations, Taiwan
Paper type Research paper
Introduction
Online stockbroking is essentially a combination of the capabilities of the internet and
stockbrokering services to facilitate virtual stock transactions. With the availability of
online stockbroking, investors can now examine their portfolios, issue instructions,
and buy and sell stocks over the internet. This virtual stockbroking system performs
as a hub, where investors can conduct all their stock trading activities. Furthermore,
online stockbroking houses also provide stock market information on their web sites
for customers. This information includes real time stock quotes, information on stocks
and the companies. The convenience of the internet has allowed stock investors fast
and easy access to stock trading thus allowing more people to invest in the stocks.
According to the latest market survey conducted on internet stockbroking in 2006, 46
percent of stock investors in Taiwan placed their orders through the internet
(InsightXplorer, 2007[1]).
 This paper conducts a study of the performance of online stockbrokers in Taiwan Online
using a new approach based on the data envelope analysis and financial analysis stockbroking
methods. Recent studies conducted on performance evaluation which focused on
operating efficiency (Liu, 2000; Huang, 2000) are not rigorous and objective enough to performance
comprehensively address the topic of performance. An objective measurement method
needs to be developed for online stockbrokers addressing both aspects of operating
effectiveness and operating efficiency in performance. This paper outlines our attempt 989
to develop such a model.
The remainder of the paper is organized as follows. Second section presents a
background of the research and a literature review on the different methods of
performance evaluation. Section three defines the evaluation process and our proposed
two-stage DEA model. Section four provides a literature review of the DEA approach
for selecting variables, which will illustrate how we choose the input and output
variables for our model. Section five explains the mechanisms of the two-stage DEA
used in this paper. Section six is an empirical study using a sample of 28 online
stockbrokers in Taiwan. The final section presents our conclusions and future research
directions.

Background of the research

In 1997 the Taiwan Securities and Futures Commission approved the revision of the
Taiwan Stock Exchange (TSE) operation rules to allow investors to place orders
through the internet (Department of Commerce, 2005[2]). According to the statistics
released by the TSE in November 2002, there were 67 online stockbrokers out of a total
of 158 stock brokers. In 2002, the traditional trading method was preferred by investors
during which only 6.87 percent of total trade was made online accounts (Department of
Commerce, 2002). A latest market survey shows that in 2006, 46 percent of stock
trading volume was done through the internet (InsightXplorer, 2007). The volume of
online stock trading in Taiwan is expected to grow rapidly.
Domestic stockbroking firms dominate the industry in Taiwan and they all maintain
an extensive branch network across Taiwan and thus online stockbroking is an
important channel for better market penetration and increased market share in the
internet era. There has always been intense competition in the Taiwan online
stockbroking sector therefore, an assessment of online performance is important for
stockbrokers to measure their competitiveness in order to formulate the appropriate
strategies. The internet is also used by investors to gather information on stockbrokers
when choosing which one to appoint. Moreover, the competitive position of a
stockbroking company is usually attributed to its market share in the industry. Hence,
competition as a market mechanism is important for distinguishing the industry leaders
from the rest of the market players. According to Dubelaar et al. (2003), for competition
to be more a meaningful there should also be an objective comparison for measuring
performance. Thus, an objective performance measurement framework for online
stockbrokers should incorporate both effectiveness and efficiency (Huang, 2000).
Essentially, performance evaluation carries a number of attributes (or criteria) and
covers multiple levels. Items chosen for evaluating performance include both
quantifiable and non-quantifiable indicators; they may also be mutually exclusive,
related or independent of each other. In addition, the performance situations that are
being evaluated can be extremely complex and unpredictable. Therefore, several
IMDS methods for effective evaluation of performance aimed at providing solutions for issues
108,7 with multiple variables and targets have recently emerged. They are:
. multivariate statistical analysis (Fielding et al., 1985);
.
data envelopment analysis (DEA) (Ho and Tan, 2004; Ho and Zhu, 2004);
.
analytic hierarchy process (Tsai et al., 2006; Cengiz et al., 2003; Liang, 2003);
990 .
fuzzy set theory (Cengiz et al., 2003; Felix and Chan, 2003);
.
grey relation analysis (Ho, 2006);
.
balanced scorecard (Vokurka, 2004; Kaplan and Norton, 1996); and
.
financial statement analysis (Collins, 1980; Espahbodi, 1991).

In choosing the appropriate model for performance evaluation, maintaining objectivity,

fairness and feasibility are crucial attributes.
Each of the above seven methods can be independently applied for evaluating
performance. However, no one of them is perfect. There is a saying that “whenever
there is an advantage, it entails a drawback”. Researchers can only choose a method to
evaluate performance that has the least amount of drawbacks for that study’s
particular situation. Among these approaches, DEA is perhaps the most commonly
used approach for measuring performance (Seiford and Zhu, 1999). The two-stage DEA
has not been used before to measure online stockbroking or internet companies’
performance. This is the first study of its kind to apply the two-stage DEA for such a
purpose, and it intends to establish grounds for the use of DEA as an effective
measurement tool for organizational effectiveness and efficiency in the online
stockbroking industry.

The research approach

Seiford and Zhu (1999) first proposed a two-stage DEA model to measure the
profitability and marketability of 55 US commercial banks. In their research, it was
necessary to extend the basic DEA to a two-stage DEA methodology to fully
characterize the performance of these 55 banks. Therefore, the researchers classified
the performance of bank production processes into two stages, profitability and
marketability. This conception has been widely adopted by many researchers in recent
years (Luo, 2003; Lo and Lu, 2006; Hwang and Kao, 2006). Ho and Zhu (2004) proposed
an innovative two-stage DEA model that separates efficiency and effectiveness into
two ways to evaluate the banking industry in Taiwan. In their study, the conceptual
framework is developed based on the return on assets (ROA), which is a ratio
commonly used in financial analysis, to define the meaning of performance. As they
suggested, one approach to evaluate efficiency and effectiveness of revenue-producing
organizations is to disaggregate ROA using the concept of the Du Pont model, an
expression that breaks ROA down into two parts: profit margin, total asset turnover
(Ross et al., 2007). The relationship is shown below:

Earnings before taxation Net sales

ROA ðperformanceÞ ¼ £
Net sales Total assets

¼ Profit margin ðeffectivenessÞ £ Total assets turnover ðefficiencyÞ

The use of the Du Pont model in the context of our study is explained in this section. Online
The ROA (performance): measures profitability before taxation and it is used as a stockbroking
proxy for performance in this research. It is comprised of two components,
“effectiveness” and “efficiency”, that are represented by the profit margin (i.e. earning performance
before taxation/net sales) and total assets turnover (i.e. net sales/total assets),
respectively. Profit margin (effectiveness): assesses the net profitability before taxation
during the current accounting period. It is treated as a proxy for effectiveness and is 991
defined as the ability to achieve the expected goal (result or output). Total assets
turnover (efficiency): assesses the ability of the firm to use its assets and is used as a
proxy for efficiency. It is defined as the output generated by a given level of resources
under the influence of environmental conditions. This decomposition facilitates the
examination of the ROA as a measure of profitability (effectiveness) and the level of
assets required to generate sales (efficiency). Alternatively, they indicate
management’s effectiveness in controlling costs and efficiency in utilising assets,
respectively. As such, the ROA encompasses measures of sales, earnings before
taxation and total assets.
The adoption of the Du Pont model and its inherent components in this research
helps to define the important dimensions of effectiveness and efficiency of a
revenue-producing organization. The profit margin ratio measures effectiveness, i.e. a
revenue-producing organization’s net income given the sales it generates. The total
assets turnover ratio measures efficiency, i.e. a revenue-producing organization’s
ability to generate the sales in relation to its asset base. Hence, we assume an efficient
and effective firm to be one that uses minimum resources to produce maximum profit.
This analysis shows that performance is a function of the product of efficiency and
effectiveness.
This paper evaluates the performance of Taiwan’s online stockbrokers based on the
concept of the two-stage of DEA approach as described in the preceding sections and is
shown in Figure 1.
In our proposed model, we divided the evaluation process into two stages: efficiency
measurement and effectiveness measurement, according to the features of the
variables and consistent with the proposed framework. The intermediate variables in
this research act as the output in the first stage and the input in the second. The
following section introduces the DEA variable selection for each stage of this study.

DEA variable selection

The identification of input and output variables to be used in an assessment of
comparative performance using DEA is a subject of debate (Paradi and Schaffnit,
2004). In this study, the existing literature on the use of the DEA approach for

Input Operating Intermediate Operating Output

variables Efficiency variables Effectiveness variables

Figure 1.
Stage 1 Stage 2 Proposed two-stage
DEA model
Efficiency measurement Effectiveness measurement
IMDS evaluating stockbroking performance provides the reference for selecting variables.
108,7 This task is made more challenging as there is no existing research, to our knowledge,
which uses a two-stage DEA method to measure the performance of online
stockbrokers or traditional stockbrokers. To meet the objective of this research, the
authors surveyed relevant studies that adopted a two-stage DEA method to measure
performance in related industries. The selected variables have to correspond to the
992 concept and components of the Du Pont model and the following Tables I and II
highlight the variables in the related literature.
As discussed earlier, the selection of variables is an essential and critical part of an
assessment process using DEA. In this research, the authors chose “operating
expense”, “employees”, “total assets”, “revenue”, “brokerage commission”, “earnings
per share” (EPS) and “net income” as the main variables, which is consistent with the
existing literature. The variables are grouped according to their key features vis-à-vis
process efficiency measurement and effectiveness measurement in the two-stage
evaluation.

Authors Input variable Output variable

Lin (1998) 1. Salaries 1. Operating revenue

2. Operating costs 2. Non-operating revenue
3. Fixed assets
Huang (2000) 1. Operating costs 1. Brokerage commission
2. Salaries 2. Brokerage revenue
3. Advertising expenses
4. Depreciation expenses
Table I. Lin (2001) 1. Operating costs 1. Operating revenue
Survey of DEA 2. Salaries 2. Non-operating revenue
application in the 3. Fixed assets 3. Brokerage commission
securities industry 4. Non-operating expense

Input Intermediate Output

Authors Industry variables variables variables

Seiford and Zhu Top 55 US commercial banks Employees Revenue Market value
(1999) Assets Profit Total return to
investors
Stockholder’s Earning per share
equity
Luo (2003) 245 large banks in USA Employees Revenue Market value
Assets Profit Earning per share
Stockholder’s Stock price
equity
Ho and Zhu 41 commercial banks in Taiwan Capital stock Sales Net income
(2004) Assets Deposits Interest income
Branches Non-interest
Table II. employees income
Summary of literatures Lo and Lu (2006) 14 Financial holding companies Assets Revenue Earning per share
using two-stage DEA to in Taiwan Equity Profit Market value
measure performance Employees Stock price
In the first stage of the evaluation, we classified operating expense, employees and Online
total assets as input variables and revenue and brokerage commission as output stockbroking
variables to measure the operational efficiency of the online stockbrokers. In the second
stage, revenue and brokerage commission are used as input variables and EPS and net performance
income as output variables for measuring the effectiveness of the online stockbrokers;
representing earnings or profit attributed to the firm’s stockholders. Revenue and
brokerage commissions are the intermediate variables used in this research, which 993
means that they act as the output variables in the first stage and the input variables in
the second stage of the iterative process.

Basics of data envelopment analysis

DEA is an optimization technique using mathematical programming for frontier
analysis that defines a relationship between multiple inputs and multiple outputs. It
uses a non-parametric approach to build an efficiency frontier to measure relative
efficiency for a set of homogeneous decision-making units (DMUs) in investing
multiple inputs (resources) to generate multiple outputs (performance). The distance
between the former and the latter provides a measure of efficiency or inefficiency.
Compared with those inefficient DMUs, efficient DMUs can generate more output
when the input is constant; or, they can generate the same output as other firms by
using less input (Farrell, 1957). The basic concept of DEA is derived from
the microeconomic theory of Pareto optimality, and the first study to develop
efficiency measures was conducted by the economist Farrell (1957). However, the
first DEA model was developed by management science and operations research
scholars (Charnes et al., 1978). The DEA model they introduced is referred to as a
Charnes et al. (CCR) model, which observes a constant return to scale (CRS). Since
then, DEA has been widely used as an analytical tool for performance evaluation.
The CCR model was later extended by Banker et al. (1984) to include variable
returns to scale, and this model is commonly referred to as the Banker, Charnes and
Cooper (BCC) model. The CCR and BCC are the two main DEA models. When one
unit of input generates one unit of output in a production process, this input-output
relationship is known as CRS. Therefore, the CCR model is used to measure the
overall technological efficiency of DMUs under the premise that the scale of return
is fixed. The BCC model was proposed by Banker et al. (1984), with the purpose of
extending the concept of the CCR model and scope of application. The fundamental
premise of the BCC model is that where scale of return is changeable, the overall
technical efficiency of the CCR model could be compartmentalized into pure
technical efficiency and scale efficiency. Thus, the overall technical efficiency of the
CCR model can be further compartmentalized into pure technical efficiency and
scale efficiency.
In this study, we use the CCR model to measure the overall performance of 28 online
stockbrokers in Taiwan. The following is the formula and conditions of the CCR model.
Maximize:
!
Xm X s
2 þ
uþ1 si þ sr ð1Þ
i¼1 r¼1

Subject to:
IMDS X
s
0 ¼ uyr0 2 yrj lj þ sþ
108,7 r¼1
r

X
n
xi0 ¼ xij lj þ sþ
i
j¼1
994
X
m
lj ¼ 1
j¼1

þ
lj ; s2
i ; sr $ 0; for i ¼ 1; . . . ; m; r ¼ 1; . . . ; s; j ¼ 1; . . . ; n
þ
where s2 i , the difference input variable (input slacks); sr , the difference output variable
(output surplus); lj , the j-th DMU weight value.
þ
If, u ¼ 1 and all input and output slacks, s2 i and sr , are equal to zero, then DMU0 is
CRS-efficient and is operating on the CRS frontier.
þ
If, u – 1 or some input and (or) output slacks, s2 i and sr , are not equal to zero, then
DMU0 is CRS-inefficient and could improve its efficiency by either reducing its input
levels or increasing its output levels over which management has control (Zhu, 2000).

Empirical study
Data and sample selection
All the data used in this study are either collected from the Market Observation Post
System or from the respective companies’ web sites. The selection of suitable research
subjects are based on the following criteria:
.
the fiscal year of the firm must end on December 31; and
.
the brokers that have negative financial data are excluded from the DEA
analysis (Seiford and Zhu, 1999) and firms with two or more years of negative
financial data are excluded from the study.

Based on these criteria, 28 firms (integrated stockbrokers) with online stock trading
services are included in this study.
The research period is from 2003 to 2005. According to Charnes et al. (1978), the
same subject in different years can be treated as individual DMUs. Therefore, each firm
in different years can be considered as an independent DMU. As a result, there is a total
of 84 eligible DMUs (i.e. 28 firms times three years) or observations. However, during
the research period there are eight firms with negative financial data in various years
(being Primasia Securities, KGI Securities, Concord International Securities, Waterland
Securities, Concord Securities, and Fuhwa Securities in 2005, First Taisec Securities in
2004, and Jih Sun Securities in 2003). Therefore, these eight DMUs are excluded from
the DEA analysis. Moreover, Cathay Securities was only established in August 2004,
which means that there are no data for this firm for 2003 and 2004. Finally, a total of 74
DMUs are studied in this research.

DEA result
The DEA results are presented in the Appendix showing the CCR efficiency scores in
stage one and stage two. The DMU code shown in the Appendix represents each
company and the relevant year and made up of a combination of the company code and Online
the year. For example, the DMU Shinkong Securities in 2003 is expressed as “SKSC stockbroking
03.” There are seven out of the 74 DMUs studied (or 9.46 percent) that are CCR-efficient
in operating efficiency, namely, Shinkong Securities in 2003 (SKSC 03), Shinkong performance
Securities in 2005 (SKSC 05), Primasia Securities in 2004 (Primasia 04), Oriental
Securities in 2003 (OSC 03), Ta Chong Securities in 2003 (TCSC 03), Oriental Securities
in 2004 (OSC 04), and Chinatrust Securities in 2003 (CTSC 03). Whilst, five out of the 74 995
DMUs (or 6.76 percent) are CCR-efficient in operating effectiveness, and they are
Primasia 04, Tachan Securities in 2005 (TACHAN 05), Concord International Securities
in 2004 (CIS 04), Taiwan Securities in 2005 (TSC 05), and OSC 03.
From the Appendix, it can also be seen that two DMUs, OSC 03 and Primasia 04,
have CCR-efficiency in both operating efficiency and operating effectiveness. This
implies that these two DMUs have good overall performance in sales, asset utilization,
human resource management and expenditure control for generating optimal financial
benefits to stockholders.

Process improvement
The analysis in the previous section provides an indication of which online
stockbrokers were efficient or inefficiency in operational performance. Inefficient
online stockbrokers in either stage 1 or 2 could be representative of those DMUs that
are inefficient in resource allocation. For example, SKSC 03 was inefficient in stage 2
effectiveness performance, but it can improve its performance by increasing its EPS
and net income. Thus, it is possible for inefficient online stockbrokers to improve their
overall performance at each point of the two-stage DEA evaluation.
According to the efficiency and effectiveness scores, the position of each DMU
(online stockbroker) is plotted on efficiency-effectiveness matrix. Figures 2-4 show the
distribution of the DMUs on the efficiency-effectiveness matrix for 2003-2005. These
three figures do not only depict the performance of the 28 online stockbrokers in the
respective years, but they also provide a map on where the online stockbrokers can
improve to achieve better overall performance. For example, in 2003, TCSC would need
to focus on improving operating effectiveness.
In 2003, 11 online stockbrokers achieved “high” operating efficiency and
effectiveness, which is defined as scores higher than 50 in both areas. These 11
companies are in the top right quadrant of the matrix. They are Primasia, SKSC, OSC,
Industrial Bank of TSC, CIS, Hua Nan Entrust Securities, Yuanta Core Pacific
Securities, President Securities, Ta Ching Securities, Sinopac Securities, and Mega
Securities.
In 2004 five online stockbrokers achieved high-operating efficiency and
effectiveness with scores of more than 50 in both aspects. The five companies are
on the top right of the matrix. They are Primasia Securities, OSC, Concord
International Securities, TCSC, and Tachan Securities.
In 2005, only one online stockbroker, OSC, achieved high operating efficiency and
effectiveness. In the period between 2003 and 2005, 57 percent of DMUs (i.e. 47 out of 74
DMUs) experienced high efficiency but low effectiveness scores. Generally speaking,
although most online stockbrokers were able to maintain high-operating efficiency
during the study period, their performance in operating effectiveness declined.
IMDS Year 2003
100 OSC
108,7 Primasia
FTSI CIS SKSC
Yuanta

996 PSC
IBTS
Ta Ching
Effectiveness Score

Mega Securities SinoPac

50 Hua Nan Entrust
KGI
CSC
FBS Fuhwa
Tachan ML TCSC
Esunsec TSC
Concords
Polaris CTSC

Figure 2. Waterland
Distribution of online GCSC
stockbrokers on
efficiency-effectiveness 0
0 50 100
matrix in 2003
Efficiency Score

Year 2004 Primasia

100 CIS
Tachan

OSC
Ta Ching
Effectiveness Score

TCSC
50 PSC
FBS IBTS
CSC
KGI
Fuhwa TSC
Concords GCSC ML
SKSC
SinoPac
Esunsec Yuanta
Figure 3. Polaris
Jihsun Hua Nan Entrust
Distribution of online Mega Securities
stockbrokers on
0 Waterland CTSC
efficiency-effectiveness
0 50 100
matrix in 2004
Efficiency Score

The relation between efficiency and effectiveness

The empirical result shows that seven out of 74 firms are CCR-efficient on operating
efficiency and five out of 74 firms are CCR-efficient on operating effectiveness. In the
context of the relation between both dimensions (operating efficiency and operating
 Year 2005 Online
100 TSC Tachan stockbroking
performance
OSC

997
Effectiveness Score

50
Jihsun GCSC
PSC
SinoPac
Ta Ching
FBS Hua Nan Entrust
Mega Securities SKSC
Cathaysec
ML
CSC Yuanta
TCSC IBTS CTSC Figure 4.
Esunsec Distribution of online
FTSI Polaris stockbrokers on
0 efficiency-effectiveness
0 50 100
matrix in 2005
Efficiency Score

effectiveness), the results show that of the 74 firms studied, those firms with good
operating efficiency do not necessarily have corresponding good operating
effectiveness. For example, CTSC 03 ranks first in operating efficiency but ranks
low (i.e. 24.11 percent) in operating effectiveness and TSC 05 ranks first in operating
effectiveness but ranks low (i.e. 22.74 percent) in operating efficiency. From these
observations, there is no apparent correlation between these two indicators.
The authors also used statistical analysis to test whether there is any observable
relationship between the efficiency scores and effectiveness scores. The details and
assumptions of this test are presented below. The efficiency scores of stage one is set as
independent variable X and the effectiveness scores of stage 2 as dependent variable Y.
Assuming the statistical relationship between X and Y is linear and can be expressed
as the following equation:
Y 1 ¼ b0 þ b1 X i þ 1 i ; i ¼ 1; 2; . . . ; 74
where Yi is the dependent variable of the i-th observation; b0 and b1 are the
parameters; Xi is independent variable of the i-th observation; 1i is the stochastic error
and 1i , 1j are uncorrelated.
Then, the author set r as the population correlation coefficient of X and Y. The null
hypothesis and the alternative hypothesis are shown as following:
Null hypothesis:
H0 : r ¼ 0
Alternative hypothesis:
HA : r . 0
 pffiffiffiffiffiffiffiffiffiffiffi pffiffiffiffiffiffiffiffiffiffiffiffiffi
IMDS Using the statistical test of t ¼ r n 2 2= 1 2 r 2 , where r is the sample correlation
coefficient (here, the Pearson correlation coefficient is 0.141) and n is the sample size of
108,7 74, we conducted the statistic test and the result shows that t ¼ 1.209. As this value
does not fall into the critical region under the significant level of 95 percent, the null
hypothesis is not rejected in this test and we can conclude that the population
correlation coefficient of X and Y is not greater than zero. This statistical test confirms
998 that a DMU with high-operating efficiency does not necessarily have corresponding
high-operating effectiveness and a DMU with poor operating efficiency does not
necessarily have poor operating effectiveness. Therefore, there is no significant
positive linear correlation between operating efficiency and operating effectiveness.

Conclusion and future study

The major contribution of this paper is in the development of a new conceptual
framework for defining and measuring the performance of internet-based
stockbrokerage firms using a two-stage DEA in conjunction with the ROA
ratio. The ROA is a familiar metric to managers and one which is widely used in
business performance evaluation. Therefore, this approach can be readily related to
business and easily understood by managers. Online stockbroking is a relatively
new business form which is undergoing rapid change and experiencing strong market
growth due to the global proliferation of the internet. This makes it crucial for online
stockbroking firms to analyze and monitor the relative efficiency and effectiveness of
their organizations in order to achieve sustainable growth.
Huang (2000) used data from 1997 to 1999 in a one-stage DEA to assess the
performance of online stockbrokers in Taiwan. From the results of his study, Huang
(2000) highlighted the limitations of using the one-stage DEA for evaluating the
performance of online stockbrokers. Furthermore, Seiford and Zhu (1999) proved that
the one-stage DEA is less effective than the two-stage DEA approach. Therefore, this
study provides an assessment of the performance of online stockbrokers using an
innovative two-stage DEA model. Furthermore, a better assessment of online
stockbroking performance would be possible if qualitative data or non-financial data
(such as web usage data) are analyzed in conjunction with quantitative financial data.
As this is the first research to employ an innovative two-stage DEA approach for
measuring the operational efficiency and effectiveness of online stockbrokers in
Taiwan, there may be limited theoretical support in the selection of the input and
output variables. Thus, this research is exploratory and experimental in its application
of the innovative two-stage DEA-based approach for assessing the performance of the
online stockbrokerage industry.
The empirical results from our study have the following managerial implications:
.
The two-stage DEA method can be used to “indicate” the scores for assessing
both the operating efficiency and effectiveness of a DMU.
.
The assessment of the overall performance of a DMU using a combined
efficiency and effectiveness matrix is more meaningful.
.
The efficiency and effectiveness matrix helps online stockbrokers understand
and appreciate their performance more thoroughly.
.
The results can help firms fine-tune their business strategies to improve
performance.
 .
The method developed in this study can be readily adopted for use in other Online
industries as a performance evaluation tool. stockbroking
Like all academic studies, this research also has its limitations. The limitations are, performance
first, the lack of non-financial data in this research due to unavailability of this type of
data at the time of the study. The research would be more robust with the inclusion of
this type of data. Second, the selection of the input and output variables may not have 999
the necessary theoretical underpinning due to the new methodology adopted in this
study.
In conclusion, the two-stage DEA approach and the efficiency-and-effectiveness
matrix used in this study can be adopted for use in performance evaluation on other
industries in future academic research. The efficiency and effectiveness matrix
identifies and positions the firm on a single matrix, which can be easily used by
managers to fine-tune operations to strategic direction. Future research should also
incorporate the study of strategic management in the analysis in order to develop
precise strategies for each dimension on the matrix.

Notes
1. InsightXplorer is an online consultant company which mainly provides integrated
marketing solutions and online market research. (www.insightxplorer.com/news/
news_01_26_07.html).
2. A department within Taiwan’s Ministry of Economic Affairs – MOEA).

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Appendix. Efficiency results of first and second stage Online
stockbroking
performance
Year Company DMU code Score

First stage operating efficiency

2003 Shinkong Securities SKSC 03 100 1001
2005 Shinkong Securities SKSC 05 100
2004 Primasia Securities Primasia 04 100
2003 Oriental Securities OSC 03 100
2003 Ta Chong Securities TCSC 03 100
2004 Oriental Securities OSC 04 100
2003 Chinatrust Securities CTSC 03 100
2003 Industrial Bank Of Taiwan Securities IBTS 03 87.67
2004 Concord International Securities CIS 04 86.25
2004 Polaris Securities Polaris 04 84.53
2004 Industrial Bank Of Taiwan Securities IBTS 04 81.51
2004 KGI Securities KGI 04 80.59
2004 Hua Nan Entrust Securities Hua Nan Entrust 04 78.68
2004 Taiwan Securities TSC 04 77.54
2005 Chinatrust Securities CTSC 05 75.38
2003 Taiwan Securities TSC 03 74.02
2005 Polaris Securities Polaris 05 72.54
2004 Tachan Securities TACHAN 04 72.52
2004 Chinatrust Securities CTSC 04 69.92
2005 Oriental Securities OSC 05 69.82
2004 President Securities PSC 04 69.66
2003 Masterlink Securities ML 03 69.26
2003 Primasia Securities Primasia 03 68.85
2004 Fubon Securities FBS 04 68.09
2005 Industrial Bank Of Taiwan Securities IBTS 05 67.97
2004 Masterlink Securities ML 04 67.56
2003 Hua Nan Entrust Securities Hua Nan Entrust 03 67.23
2004 Shinkong Securities SKSC 04 67.23
2004 Yuanta Core Pacific Securities YUANTA 04 65.94
2004 Jih Sun Securities JIHSUN 04 65.43
2003 Polaris Securities Polaris 03 65.42
2003 Concord International Securities CIS 03 65.41
2005 E.Sun Securities ESUNSEC 05 65.09
2004 Sinopac Securities SinoPac 04 64.94
2003 Fuhwa Securities Fuhwa 03 63.29
2005 Grand Cathay Securities GCSC 05 62.57
2003 Sinopac Securities SinoPac 03 62.24
2003 Yuanta Core Pacific Securities YUANTA 03 61.88
(continued) Table AI.
IMDS
108,7 Year Company DMU code Score

2003 Grand Cathay Securities GCSC 03 60.69

2005 Hua Nan Entrust Securities Hua Nan Entrust 05 60.46
2005 First Taisec Securities FTSI 05 60.14
1002 2004 Grand Cathay Securities GCSC 04 59.98
2003 Fubon Securities FBS 03 59.9
2003 President Securities PSC 03 59.57
2004 Capital Securities CSC 04 59.53
2004 Waterland Securities Waterland 04 59.44
2003 Ta Ching Securities TA CHING 03 59.14
2003 Mega Securities Mega Securities 03 58.92
2003 KGI Securities KGI 03 57.97
2005 Masterlink Securities ML 05 57.66
2004 Mega Securities Mega Securities 04 55.79
2004 Ta Chong Securities TCSC 04 55.78
2005 Mega Securities Mega Securities 05 55.39
2005 President Securities PSC 05 54.02
2005 Yuanta Core Pacific Securities YUANTA 05 53.95
2004 Fuhwa Securities Fuhwa 04 53.6
2005 Fubon Securities FBS 05 52.82
2005 Sinopac Securities SinoPac 05 51.79
2004 Concord Securities CONCORDS 04 50.43
2003 Capital Securities CSC 03 49
2005 Jih Sun Securities JIHSUN 05 48.85
2003 Tachan Securities TACHAN 03 48.84
2004 Ta Ching Securities TA CHING 04 48.77
2003 Concord Securities CONCORDS 03 48.17
2005 Capital Securities CSC 05 47.14
2005 Ta Ching Securities TA CHING 05 47.13
2004 E.Sun Securities ESUNSEC 04 47.03
2005 Cathay Securities Cathaysec 05 43.87
2003 Waterland Securities Waterland 03 42.95
2005 Ta Chong Securities TCSC 05 41.01
2003 E.Sun Securities ESUNSEC 03 39.82
2005 Tachan Securities TACHAN 05 38.05
2003 First Taisec Securities FTSI 03 36.36
2005 Taiwan Securities TSC 05 22.74
Second stage operating effectiveness
2004 Primasia Securities Primasia 04 100
2005 Tachan Securities TACHAN 05 100
2004 Concord International Securities CIS 04 100
2005 Taiwan Securities TSC 05 100
Table AI. (continued)
 Online
Year Company DMU code Score stockbroking
2003 Oriental Securities OSC 03 100 performance
2003 Primasia Securities Primasia 03 95.07
2004 Tachan Securities TACHAN 04 91.51
2003 Shinkong Securities SKSC 03 89.71 1003
2003 Concord International Securities CIS 03 88.55
2003 First Taisec Securities FTSI 03 88.1
2003 Yuanta Core Pacific Securities YUANTA 03 83.32
2005 Oriental Securities OSC 05 80.91
2004 Oriental Securities OSC 04 76.23
2003 President Securities PSC 03 74.56
2003 Industrial Bank Of Taiwan Securities IBTS 03 71.79
2004 Ta Ching Securities TA CHING 04 70.56
2003 Fubon Securities FBS 03 69.73
2003 Ta Ching Securities TA CHING 03 68.04
2004 Ta Chong Securities TCSC 04 59.23
2003 Sinopac Securities SinoPac 03 55.22
2003 Mega Securities Mega Securities 03 52.37
2003 Hua Nan Entrust Securities Hua Nan Entrust 03 51.28
2004 President Securities PSC 04 48.37
2003 KGI Securities KGI 03 47.78
2004 Fubon Securities FBS 04 46.5
2005 Grand Cathay Securities GCSC 05 46.32
2005 Jih Sun Securities JIHSUN 05 44.94
2004 Industrial Bank Of Taiwan Securities IBTS 04 44.64
2004 Capital Securities CSC 04 41.89
2005 President Securities PSC 05 39.98
2003 Capital Securities CSC 03 39.69
2003 Fuhwa Securities Fuhwa 03 39.52
2004 KGI Securities KGI 04 38.29
2003 Tachan Securities TACHAN 03 37.98
2003 Masterlink Securities ML 03 36.06
2003 E.Sun Securities ESUNSEC 03 35.47
2004 Fuhwa Securities Fuhwa 04 35.26
2003 Ta Chong Securities TCSC 03 35.1
2005 Sinopac Securities SinoPac 05 34.96
2004 Concord Securities CONCORDS 04 34.4
2004 Taiwan Securities TSC 04 33.13
2003 Taiwan Securities TSC 03 31.87
2005 Shinkong Securities SKSC 05 31.31
2004 Grand Cathay Securities GCSC 04 30.48
(continued) Table AI.
IMDS
108,7 Year Company DMU code Score

2005 Ta Ching Securities TA CHING 05 30.16

2004 Masterlink Securities ML 04 29.05
2005 Cathay Securities Cathaysec 05 28.85
1004 2003 Concord Securities CONCORDS 03 28.58
2005 Hua Nan Entrust Securities Hua Nan Entrust 05 28.07
2004 Shinkong Securities SKSC 04 27.74
2004 Sinopac Securities SinoPac 04 24.97
2005 Fubon Securities FBS 05 24.72
2003 Chinatrust Securities CTSC 03 24.11
2005 Mega Securities Mega Securities 05 23.79
2003 Polaris Securities Polaris 03 22.37
2004 Yuanta Core Pacific Securities YUANTA 04 21.6
2005 Yuanta Core Pacific Securities YUANTA 05 20.23
2005 Capital Securities CSC 05 20.17
2005 Masterlink Securities ML 05 20
2004 E.Sun Securities ESUNSEC 04 17.56
2004 Polaris Securities Polaris 04 16.77
2005 Chinatrust Securities CTSC 05 15.24
2005 Industrial Bank Of Taiwan Securities IBTS 05 13.81
2003 Waterland Securities Waterland 03 13.26
2005 Ta Chong Securities TCSC 05 13.25
2004 Jih Sun Securities JIHSUN 04 13.1
2004 Hua Nan Entrust Securities Hua Nan Entrust 04 12.64
2005 E.Sun Securities ESUNSEC 05 12.18
2003 Grand Cathay Securities GCSC 03 8.58
2005 Polaris Securities Polaris 05 8.15
2005 First Taisec Securities FTSI 05 7.61
2004 Mega Securities Mega Securities 04 5.88
2004 Waterland Securities Waterland 04 5.72
Table AI. 2004 Chinatrust Securities CTSC 04 2.54

Corresponding author
Chien-Ta Bruce Ho can be contacted at: bruceho@nchu.edu.tw

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