Cost efficiency in Australian non‐bank financial institutions: A non‐parametric approach

Worthington, Andrew C.

doi:10.1111/1467-629x.00036

Cited by 25 publications

(32 citation statements)

References 30 publications

(54 reference statements)

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“…Also, it is equally important to examine which ownership type or organisational form produces stronger incentives to control inputs and/or boost outputs. The conventional way to accomplish such analysis is a two-step procedure, whereby a point estimate of X-efficiency is obtained for each firm and then the estimated efficiency scores are regressed against a set of explanatory variables (Worthington, 2000;Rezitis, 2006). Table 7 imply that banks with higher loans-to-asset ratios tend to have higher efficiency scores.…”

Section: The Determinants Of Malaysian Islamic Banks Efficiencymentioning

confidence: 99%

Bank Ownership, Characteristics, and Performance:A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia

Sufian¹,

Zulkhibri²

2008

islec

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Today, the Malaysia Islamic banking system is becoming an effective means of financial intermediation reflected by its extensive distribution networks comprising 152-full-fledgedIslamic banking branches and more than 2,000 Islamic banking counters. The ability of the Islamic banking institutions to arrange and offer products with attractive and innovative features at prices that are competitive with conventional products, has appealed both the Muslim and nonMuslim customers. This has spurred the efforts by other non-bank financial intermediaries such as the development financial institutions, savings institutions and housing credit institutions to introduce Islamic banking schemes and instruments to meet their customer demands.Throughout the years, Islamic banking in Malaysia has gained significance, and has been on a progressive upward trend. Since 2000, the Islamic banking industry has been growing at an Constructing a separate frontier for each of the years under study is a critical issue in a dynamic business environment because a bank may be the most efficient in one year but may not be in the 5 following year. In the Malaysian context, it becomes more important, as there is an ongoing liberalisation in the banking sector over the estimation period. A separate frontier will highlight any significant changes taking place in the sector that are induced by Bank Negara Malaysia"s (BNM) supervisory policies.As Malaysia is currently vying for recognition as the capital or hub of Islamic banking worldwide, the government has taken measures, among others, to further liberalise the sector.The strategy is to create more competition, to tap new growth opportunities, and to raise the Furthermore, the paper explores the proximate sources of (in) efficiency under both univariate This paper unfolds as follows. Section 2 provides an overview of the related studies in the literature, followed by a section that outlines the method used and choice of input and output variables for the efficiency model. Section 4 reports the empirical findings. Section 5 concludes and offers avenues for future research. REVIEW OF THE RELATED LITERATUREWhile there has been extensive literature examining the efficiency features of U.S. andEuropean banking markets over recent years, the work on Islamic banking is still in its infancy.Typically, studies on Islamic bank efficiency have focused on theoretical issues and the empirical work has relied mainly on the analysis of descriptive statistics rather than rigorous statistical estimation (El-Gamal and Inanoglu, 2005). However, this is gradually changing as a number of recent studies have sought to apply the approaches outlined above to estimate bank efficiency using various frontier techniques. sharing. Despite that, the bank was found to perform better compared to its conventional counterparts in terms of liquidity and risk measurement (lower risks). METHODOLOGY Data Envelopment AnalysisThe present study employs the non-parametric frontier DEA approach to estimate the The analysis under ...

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Section: The Determinants Of Malaysian Islamic Banks Efficiencymentioning

confidence: 99%

Bank Ownership, Characteristics, and Performance:A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia

Sufian¹,

Zulkhibri²

2008

islec

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“…However, Sherman and Gold (1985) first applied DEA for measuring the performance of the banking sector (Molyneux et al, 1996;cited in Sathye, 2001, p. 617). Later on, Yue (1992), Favero and Papi (1995), Leightner and Lovell (1998), Gilbert and Wilson (1998), Worthington (2000), Sathye (2001), Sathye (2003), Isik and Hasan (2003), Ali et al (2004), Strum and Williams (2004), Neal (2004), Wu (2005), Ali and Hang (2006), and many others have used DEA for measuring the efficiency of the financial firms. Each sample is considered as a decision making unit (DMU) in DEA and the efficiency score is calculated for each and every DMU within the sample.…”

Section: Methodsmentioning

confidence: 99%

“…It is also regarded as an efficient frontier technique and generally computes "the inefficiency in a particular DMU by comparing it to similar DMUs regarded as efficient, rather than trying to associate a DMU's performance with statistical averages that may not be applicable to that DMU" (Avkiran, 2006, p. 276). It means that DEA compares the performance of a firm with the performance of other firms producing similar good or service and having similar size, instead of focusing on a predetermined benchmark of a performance measurement (Worthington, 2000). The efficiency score generated by DEA varies from 0 to 1.…”

Section: Methodsmentioning

confidence: 99%

“…Table 2 gives a snap shot of the specification. The above specification is done in accordance with the works of Sathye (2001) and Worthington (2000) with few exceptions. This study does not undertake entirely similar approach of Sathye (2001) mainly because of the fact that assumption of demand deposit as output and ignorance of investment from the list of output are not at all justifiable whenever the researcher goes for intermediation approach.…”

Section: Selection Of Inputs and Outputsmentioning

confidence: 99%

“…This study does not undertake entirely similar approach of Sathye (2001) mainly because of the fact that assumption of demand deposit as output and ignorance of investment from the list of output are not at all justifiable whenever the researcher goes for intermediation approach. Worthington (2000) also uses similar approach adopted by the above author except output specification. He uses personal loan and consumer credit, property and real estate loans, commercial loans, deposit with other deposit taking institutions, and financial securities as outputs.…”

Section: Selection Of Inputs and Outputsmentioning

confidence: 99%

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Financial Reform, Ownership and Performance in Banking Industry: The Case of Bangladesh

Uddin

Suzuki

2011

IJBM

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Bangladesh entered into the era of financial reform during the early 1980s. Most of the reforms initiated by the government have concentrated predominantly on the banking sector. Consequently, many changes relating to ownership, market concentration, regulatory measures and policies have taken place primarily to enhancing bank performance. In this regard, this study is undertaken to investigate the performance of commercial banks after the implementation of significant financial reform. Data Envelopment Analysis based frontier measures income and cost efficiency and traditional non-frontier measures non-performing loans and return on assets have been used for assessing bank performance. The findings indicate that income and cost efficiency of sample banks have increased by 37.84 percent and 15.28 percent respectively in 2008 compared to 2001. Similarly, non-performing loans and return on assets also report improvement in bank performance. The results generated by regression models indicate that foreign ownership has a statistically significant positive impact on bank performance. On the other hand, private ownership has favorable impact on income efficiency, return on assets, and non-performing loans, whereas negative impact on cost efficiency.

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Efficiency in pre‐merger and post‐merger non‐bank financial institutions

Worthington

2001

Manage Decis Econ

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A two-part process is employed to analyse the role of efficiency in merger and acquisition (M&A) activity in Australian credit unions during the period 1993 to 1997. The measures of efficiency are derived using the nonparametric technique of data envelopment analysis. The first part uses panel data in the probit model to relate pure technical efficiency, along with other managerial, regulatory and financial factors, to the probability of merger activity, either as an acquiring or acquired entity. The results indicate that loan portfolio diversification, management ability, earnings and asset size are a significant influence on the probability of acquisition, though the primary determinant of being acquired is smaller asset size. The second part uses a tobit model adapted to a panel framework to analyse postmerger efficiency. Mergers appear to have improved both pure technical efficiency and scale efficiency in the credit union industry. During the last two decades, sweeping changes to the restrictions governing deposit-taking institutions (DTI) around the globe have been made. Financial service providers who previously operated within well-defined, regulatory sub-sectors have been forced to adapt to newly deregulated environments. And to some extent, the most discernible response by the financial services industry to the concomitant increase in competition has been an increase in merger and acquisition (M&A) activity. In turn, the wave of M&As has placed an emphasis on the efficiency implications of DTI mergers. Berger et al. (1993, p. 232) justifies the interest of policy-makers and other concerned parties in this process as follows: * Correspondence to: School of Economics and Finance, Queensland University of Technology, GPO Box 2434, Brisbane, QLD 4001, Australia. Tel.: +61 7 3864 2658; fax.: +61 7 3864 1500; email: a.worthington@qut.edu.au 2 If these mergers are successful in improving banking industry efficiency, substantial benefits may accrue to the customers and claimholders of these banks, and the level of competition within the banking industry may be considerably increased. Moreover, the efficiency effect of mergers constitutes an important policy question on its own, since merger applicants often cite prospective efficiency benefits as a justification for merger approval. INTRODUCTIONHowever, when examining existing research in the area of financial institution merger efficiencies, a number of salient points emerge. First, while bank merger efficiencies have been extensively studied, primarily in the context of US financial institutions [see, for instance, Rhoades (1993), Shaffer (1993, Elyasiani et al. (1994) and Grabowski et al. (1995)], relatively little attention has been paid to measuring the post-merger efficiency of non-bank financial institutions or banks outside the US. Berger et al. (1999, p. 180) use these shortcomings to direct future research in this area:Most of the empirical research on financial services consolidation has focused on US banking organisations, and much of this has use...

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Cost efficiency in Australian non‐bank financial institutions: A non‐parametric approach

Cited by 25 publications

References 30 publications

Bank Ownership, Characteristics, and Performance:A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia

Bank Ownership, Characteristics, and Performance:A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia

Financial Reform, Ownership and Performance in Banking Industry: The Case of Bangladesh

Efficiency in pre‐merger and post‐merger non‐bank financial institutions

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