Bank efficiency in Malaysia: a use of malmquist meta-frontier analysis

Md. Abul Kalam Azad (), Susila Munisamy (), Abdul Kadar Muhammad Masum (), Paolo Saona () and Peter Wanke ()
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Md. Abul Kalam Azad: University of Malaya
Susila Munisamy: University of Malaya
Abdul Kadar Muhammad Masum: University of Malaya
Paolo Saona: Saint Louis University
Peter Wanke: Federal University of Rio de Janeiro

Eurasian Business Review, 2017, vol. 7, issue 2, No 8, 287-311

Abstract: Abstract This paper uses a two-stage data envelopment analysis to examine bank efficiency in Malaysia. In the first stage, we use meta-frontier technology to address bank heterogeneity-bank nature (Islamic vs. conventional banks) and bank ownership (local vs. foreign banks). Using a data set of 43 Malaysian commercial banks, the application of meta-frontier enables us to compare the existence of inefficiency among Malaysian banks because of their business nature and ownership. In doing so, we empirically demonstrate that using different approaches (i.e., production, profitability, and intermediation) for calculating bank efficiency can give significant contradictory results in efficiency scores. In the second stage, we use Simar and Wilson’s double bootstrap regression to estimate the determinants of efficiency in Malaysian banks. This helps to achieve valid inference even in the presence of unknown serial correlation in the meta-frontier efficiency scores. The results from double bootstrap regression confirm that bank ownership, bank nature and gross domestic product have significant influence on bank efficiency. This study reveals that Islamic banks have outperformed. The frontier results reveal that local Islamic banks have moved towards the group technology and foreign Islamic banks have taken the lead in country frontier technology.

Keywords: Efficiency; Meta-frontier; Data envelopment analysis; Double bootstrap; Malaysia (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (12)

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DOI: 10.1007/s40821-016-0054-4

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