This paper examines the cost efficiency (CE), technology gap ratio (TGR), and overall cost efficiency (OCE) of 43 banks and 27 life insurance companies operating in Taiwan. The use of the copula method to derive the joint probability density function for the cost functions of financial holding banks (FHBs) and financial holding life insurers (FHLIs) allows us to take into account the operational synergies enjoyed by the financial holding companies. Our empirical results are as follows. (1) A significant, positive correlation exists between the cost efficiencies of FHBs and FHLIs, supporting that both types of firms benefit from the synergy effect. (2) The omission of synergy effects leads to underestimated measures of CE and OCE for FHBs, but leaves the measure of TGR intact. (3) The absence of synergies results in underestimating the CE scores for FHLIs, but the TGRs of FHLIs and non-FHLIs are overestimated, exaggerating the OCE scores.
