Munich Personal RePEc Archive

Consolidation and efficiency: Evidence from non-bank financial institutions in Malaysia

Sufian, Fadzlan and Abdul Majid, Muhamed Zulkhibri (2007): Consolidation and efficiency: Evidence from non-bank financial institutions in Malaysia.

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Abstract

This paper investigates the efficiency changes of finance and merchant banking institutions in Malaysia, during and post-consolidation periods by applying the non-parametric Data Envelopment Analysis (DEA). The evidence suggests that pure technical efficiency is more related to overall efficiency than scale efficiency. On average, 28.7% of finance and merchant banking institutions are operating at CRS, while the majority are scale inefficient. Our results from the Tobit regression analysis further confirmed that the level of equity capital is positively related with the level of efficiency gain. Financial institutions with higher ratio of loans to assets are related to higher level of efficiency. This might reflect the degree of market power exists in the loan markets compared to the other product markets with institutions developed their strategic niche within the market.

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