Determinants of cost efficiency in Malaysian banking

Rossazana Ab-Rahim, Nor Ghani Md Nor, Shamshubaridah Ramlee, Nur Zaimah Ubaidillah

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This study estimates the cost efficiency and its decompositions of Malaysian banks over the period of 1995 to 2010 by utilising data envelopment analysis (DEA) method. Instead of estimating efficiency based on DEA separate frontiers approach; this study departs from practice of many previous studies by pooling the data set to build a DEA common frontier. This study contributes to the existing literature by integrating determinants of banking efficiency into the areas of DEA methodology in the context of Malaysian banking system across individual domestic banks. The first objective of this study is to estimate cost efficiency and its decompositions, which are technical and allocative efficiency as well as to estimate sources of technical efficiency namely pure technical efficiency and scale efficiency. Next, Tobit regression analysis is undertaken to identify the determinants of various measures of banking efficiency. The results indicate that government ownership, population density, demand density and market concentration are positively associated with several measures of efficiency while year that merger takes place, macroeconomic condition, capitalization, credit risk, asset quality and management quality have a negative relationship with various measures of efficiency. However, the size of banks is found to have mixed sign, positive coefficient with technical and pure technical efficiency while the negative relationship with scale efficiency, cost and allocative efficiency.

Original languageEnglish
Pages (from-to)355-374
Number of pages20
JournalInternational Journal of Business and Society
Volume13
Issue number3
Publication statusPublished - 2012

Fingerprint

Banking
Technical efficiency
Data envelopment analysis
Decomposition
Allocative efficiency
Scale efficiency
Pooling
Macroeconomic conditions
Regression analysis
Banking system
Capitalization
Coefficients
Population density
Market concentration
Methodology
Credit risk
Government ownership
Quality management
Tobit regression
Mergers

Keywords

  • Cost efficiency
  • Determinants
  • Malaysian banking

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance
  • Strategy and Management
  • Business and International Management

Cite this

Determinants of cost efficiency in Malaysian banking. / Ab-Rahim, Rossazana; Md Nor, Nor Ghani; Ramlee, Shamshubaridah; Ubaidillah, Nur Zaimah.

In: International Journal of Business and Society, Vol. 13, No. 3, 2012, p. 355-374.

Research output: Contribution to journalArticle

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