Technological Innovation in Services and the Efficiency of Malaysian Commercial Banks

Chee-Wooi Hooy and Sok-Gee Chan

Jurnal Ekonomi Malaysia, 2014, vol. 48, issue 2, 111-125

Abstract: This paper revisits relative efficiency of commercial banks in Malaysia using Data Envelopment Analysis (DEA) over the 2004-2012 periods. We take into account technological innovation in bank services, a new dimension that were not investigated by any previous literature. Our main findings are: (1) Commercial banks in Malaysian have higher pure technical efficiency as compare to scale efficiency. (2) Foreign banks are relatively inefficient but the gap has been gradually closing after the end of the capital control by the Malaysian government in 2005. (3) Excess numbers of Branches, Cash Deposit Machine and Cheque Deposit Machine appeared to be the major weakness of the inefficient banks. Our result implies technological innovation in bank services is one important dimension in addressing the relative efficiency of commercial banks. Banks that provide better technological services do acquire competitive advantage against their peers.

Keywords: Bank; DEA; Technical efficiency; scale efficiency; technological innovation (search for similar items in EconPapers)
Date: 2014
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