Cost, Revenue and Profit Efficiency of Islamic and Conventional Banking Sector: Empirical Evidence from Gulf Cooperative Council Countries

Fakarudin Kamarudin, Bany Ariffin Amin Nordin, Junaina Muhammad and Mohamad Ali Abdul Hamid
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Junaina Muhammad: Fakarudin Kamarudin, Bany Ariffin Amin Nordin and Junaina Muhammad are at the Department of Accounting and Finance, Faculty of Economics and Management, Universiti Putra, Malaysia. E-mails: fakarudinkamarudin@gmail.com; fakarudin@econ.upm.edu.my
Mohamad Ali Abdul Hamid: Mohamad Ali Abdul Hamid is at King Abdulaziz University.

Global Business Review, 2014, vol. 15, issue 1, 1-24

Abstract: This article examines the cost, revenue and profit efficiency levels of 74 banks (47 conventional and 27 Islamic banks) in Gulf Cooperative Council (GCC) countries over the periods 2007 to 2011. The level of efficiencies was measured using Data Envelopment Analysis (DEA) method which applied the intermediation approach. We find that, revenue efficiency seems to play the main factor leading to the lower or higher profit efficiency levels. In essence, the higher revenue efficiency only affects a higher profit efficiency levels in Islamic banks. However, the profit efficiency on conventional banks will not be affect by the higher revenue efficiency levels since the result shows the level of profit efficiency is lower than cost efficiency due to the higher revenue efficiency. In addition, the result of this study also shows that they are statistically significant difference on cost, revenue and profit efficiency between Islamic and conventional banks in GCC countries. The findings of this study are expected to contribute significantly to the existing knowledge on the operating performance of the GCC Islamic and conventional banking sector, bank’s specific management, policy makers and may also facilitate directions for sustainable competitiveness of the GCC Islamic and conventional banking sector operations in the future.

Keywords: Cost efficiency; revenue efficiency; profit efficiency; data envelopment analysis; Gulf Cooperative Council (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:globus:v:15:y:2014:i:1:p:1-24

DOI: 10.1177/0972150913515579

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