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Research background: Economic freedom plays a pivotal role in ensuring the progressive productivity of banks. It fosters a favorable economic climate and acts as a catalyst for the generation of innovative ideas. In addition, economic freedom allows new domestic and foreign entrants in the banking sector which leads to increased competition as well as wider range of product offerings and thus potentially affect bank efficiency. Purpose of the article: This study aims to identify the effects of regulatory efficiency and market openness in terms of economic freedom on the bank’s productivity at three income levels: lower-middle, upper-middle, and high-income economies. Methods: A sample of 15 countries are included in the study from differing income levels. The study uses the data envelopment analysis (DEA) based Malmquist productivity index (MPI) approach to measure banks’ productivity. This non-parametric approach measures the relative efficiency of banks by considering the production change while taking into account technical efficiency change and technological change in order to capture a comprehensive view over time. Then, regression analysis was performed utilizing the ordinary least squares (OLS) approach, fixed effect (FE), and random effect (RE) panel multiple regression estimation methods are utilized to measure economic freedoms and other determinants’ effect on banks’ productivity change over time. Findings & value added: The results show that banks in high-income economies are more productive and have higher growth rates than those in upper- and lower-income economies. Furthermore, starting, obtaining permits, and closing businesses under business freedom have a detrimental effect on banks’ output, whereas the effects of labor freedom on employing, managing, and supervising staff members have a substantial favorable impact on banks’ productivity. Moreover, financial freedom and investment freedom under the market openness dimension negatively influence banks’ productivity. Government intervention is required to introduce regulations that allow foreign countries to provide labor at lower wages, introduce tax allowances, and control inflation rates. Thus, the empirical results of this study will benefit regulators and policymakers in developing a system and plan to increase banks’ productivity based on indicators of business, labor, financial, and investment freedom.
Research background: Economic freedom plays a pivotal role in ensuring the progressive productivity of banks. It fosters a favorable economic climate and acts as a catalyst for the generation of innovative ideas. In addition, economic freedom allows new domestic and foreign entrants in the banking sector which leads to increased competition as well as wider range of product offerings and thus potentially affect bank efficiency. Purpose of the article: This study aims to identify the effects of regulatory efficiency and market openness in terms of economic freedom on the bank’s productivity at three income levels: lower-middle, upper-middle, and high-income economies. Methods: A sample of 15 countries are included in the study from differing income levels. The study uses the data envelopment analysis (DEA) based Malmquist productivity index (MPI) approach to measure banks’ productivity. This non-parametric approach measures the relative efficiency of banks by considering the production change while taking into account technical efficiency change and technological change in order to capture a comprehensive view over time. Then, regression analysis was performed utilizing the ordinary least squares (OLS) approach, fixed effect (FE), and random effect (RE) panel multiple regression estimation methods are utilized to measure economic freedoms and other determinants’ effect on banks’ productivity change over time. Findings & value added: The results show that banks in high-income economies are more productive and have higher growth rates than those in upper- and lower-income economies. Furthermore, starting, obtaining permits, and closing businesses under business freedom have a detrimental effect on banks’ output, whereas the effects of labor freedom on employing, managing, and supervising staff members have a substantial favorable impact on banks’ productivity. Moreover, financial freedom and investment freedom under the market openness dimension negatively influence banks’ productivity. Government intervention is required to introduce regulations that allow foreign countries to provide labor at lower wages, introduce tax allowances, and control inflation rates. Thus, the empirical results of this study will benefit regulators and policymakers in developing a system and plan to increase banks’ productivity based on indicators of business, labor, financial, and investment freedom.
Macroeconomic factors are widely believed to have a crucial role in affecting a company's financial health and, ultimately, its stock price. The study addresses this important issue by investigating the long-term impact of inflation and exchange rates on firm stock prices. This study adopts both panel and cross-firm modeling, along with a dynamic approach, which no prior study has ever conducted in Indonesia’s top 10 market capitalization companies. It utilizes monthly data spanning from September 2008 to August 2023. To generate insights into long-term effects, the study applies the Dynamic Ordinary Least Squares (DOLS) method, with a robustness check using the Fully-Modified Ordinary Least Squares (FMOLS) method. The econometric estimations yield results that are consistent with the hypotheses, indicating that the rise in inflation levels has a negative effect, while the strengthening of the domestic currency in exchange rates positively influences firm stock prices in the long term. This implies that investors should carefully assess and navigate inflationary environments, consider diversifying their portfolios across industries and international markets, and maintain a long-term perspective when making investment decisions in the unique context of Indonesia's market landscape.
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