A Study of the Determinants of Cost and Revenue Efficiency in the Context of Islamic and Conventional Banks: The Case of Malaysia from 2006 to 2012

Abstract

In this paper, we examine the determinants of cost and revenue efficiency of Malaysian banks over the period [2006][2007][2008][2009][2010][2011][2012]. Three steps are undertaken to study a sample of 17 Islamic banks (IBs) and 20 conventional banks (CBs). In the first step, we assessed the competitiveness of the Malaysian banking sector. After solving the multicollinearity problem, as a second step, we selected three sets of independent variables: bank-specific, industry-specific and macroeconomic variables. In the last step, we estimated the efficiency models with the Feasible Generalized Least Squares (FGLS) method. The obtained results highlighted the importance of regulatory capital and size. As for the effect of competitiveness, it is found to be statistically significant only for revenue efficiency. These results may be useful to political decision-makers and regulatory authorities.