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ORGANIZATIONAL FORM AND EFFICIENCY: THE COEXISTENCE OF FAMILY TAKAFUL AND LIFE INSURANCE IN MALAYSIA

Norashikin Ismail, Syed Othman Alhabshi () and Obiyathulla Bacha
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Norashikin Ismail: Senior Lecturer, UiTM Segamat, Johor, Malaysia

Journal of Global Business and Economics, 2011, vol. 3, issue 1, 122-137

Abstract: After 25 years in operation, it is time that takaful industry is evaluated in terms of its performance. One of the issues that has impact on efficiency is organization form. There have been two conflicting opinions on this issue. Eling & Luhnen (2010) opined that mutual form is efficient than stock form but Brockett (2005) concluded the opposite. This paper provides an empirical study on the relationship between efficiency and organizational structure for takaful operators in Malaysian dual financial system. A sample of 19 firms is chosen over the period 2004-2009. The selection of inputs and outputs are based on flow approach consistent with Leverty and Grace (2009). The study employed non parametric approach that is Data Envelopment Analysis (DEA) with input orientation measurement to estimate the technical efficiency for both industries. This study applied constant return to scale (CRS) and variable return to scale (VRS) to separate the scale efficiency from the technical efficiency. A Mann Whitney test is employed to examine any significant difference in efficiency between takaful and insurance industry. The findings indicate that there is a significant difference in technical efficiency between takaful industry and insurance industry. It is found that takaful has lower technical efficiency than conventional insurance. Importantly, it shows the organization form has an influence on the efficiency. Finally, the study found that the conventional insurers have higher scale efficiency than takaful industry.

Keywords: Efficiency; Organization structure and Data Envelopment Analysis (DEA) (search for similar items in EconPapers)
JEL-codes: M0 (search for similar items in EconPapers)
Date: 2011
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