IDEAS home Printed from https://ideas.repec.org/a/bla/asiaec/v18y2004i3p233-259.html
   My bibliography  Save this article

Estimating Cost Functions of Malaysian Commercial Banks: The Differential Effects of Size, Location, and Ownership

Author

Listed:
  • Hidenobu Okuda
  • Hidetoshi Hashimoto

Abstract

Bank integration and competition policies are a core part of current financial reforms intended to strengthen the financial sector in Malaysia. This paper intends to clarify the production technology employed in Malaysian banks and indicate important policy implications for current bank consolidation policy. While it is essential to conduct a microeconomic analysis of the banking sector to appraise financial reform policy, Katib and Mathews (2000) is the only formal study in this area that uses micro level data on Malaysian banks. Our analysis expands on Katib and Mathews’ study in three aspects. Firstly, while Katib and Mathews employed Data Envelopment Analysis, we use estimation analysis based on a parametric approach. Secondly, we examine technological differences among Malaysian banks according to the size of operations, location of branches and ownership structure. Thirdly, we also explicitly incorporate the existence of hidden bad loans in estimating cost functions. According to our estimation analysis, there is a difference in production technology between large‐sized banks and small or medium‐sized banks. While economies of scale are observed for large‐sized banks, no economies of scope and technological progress are observed for any banks. The results of our analysis suggest that, while the current reform policy is basically appropriate, serious problems remain regarding bank consolidation and the lack of market competition.

Suggested Citation

  • Hidenobu Okuda & Hidetoshi Hashimoto, 2004. "Estimating Cost Functions of Malaysian Commercial Banks: The Differential Effects of Size, Location, and Ownership," Asian Economic Journal, East Asian Economic Association, vol. 18(3), pages 233-259, September.
    • Handle: RePEc:bla:asiaec:v:18:y:2004:i:3:p:233-259
    DOI: 10.1111/j.1467-8381.2004.00191.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-8381.2004.00191.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-8381.2004.00191.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mester, Loretta J., 1996. "A study of bank efficiency taking into account risk-preferences," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1025-1045, July.
    2. Gilbert, R. Alton & Wilson, Paul W., 1998. "Effects of Deregulation on the Productivity of Korean Banks," Journal of Economics and Business, Elsevier, vol. 50(2), pages 133-155, March.
    3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    4. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    5. Laeven,Luc A., 1999. "Risk and efficiency in East Asian banks," Policy Research Working Paper Series 2255, The World Bank.
    6. Leightner, Jonathan E. & Lovell, C. A. Knox, 1998. "The Impact of Financial Liberalization on the Performance of Thai Banks," Journal of Economics and Business, Elsevier, vol. 50(2), pages 115-131, March.
    7. Ghani, Ejaz & Suri, Vivek, 1999. "Productivity growth, capital accumulation, and the banking sector - some lessons from Malaysia," Policy Research Working Paper Series 2252, The World Bank.
    8. Clark, Jeffrey A, 1984. "Estimation of Economies of Scale in Banking Using a Generalized Functional Form," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 53-68, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. SUFIAN, Fadzlan, 2005. "Sources of Productivity Changes of Commercial Banks in Developing Economy: Evidence from Malaysia, 1998-2003," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 2(3), pages 87-100.
    2. Hidenobu Okuda & Yasushi Take, 2009. "Institutional Change and Corporate Financing in Indonesia: Estimating the Effects of Social and Political Factors on Capital Structure," Global COE Hi-Stat Discussion Paper Series gd09-108, Institute of Economic Research, Hitotsubashi University.
    3. Rossazana Ab Rahim, 2016. "Does Competition Foster Efficiency? Empirical Evidence from Malaysian Commercial Banks," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 12(1), pages 1-23.
    4. Fadzlan Sufian & Muzafar Shah Habibullah, 2010. "Financial Disruptions and the Evolution of Malaysian Banking Sector’s Efficiency: A Non-Stochastic Frontier Approach," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 166-186.
    5. Fadzlan Sufian & Muzafar Shah Habibullah, 2012. "Developments in the efficiency of the Malaysian banking sector: the impacts of financial disruptions and exchange rate regimes," Progress in Development Studies, , vol. 12(1), pages 19-46, January.
    6. Chee-keong Choong & Sok-gee Chan & Chuen-khee Pek, 2016. "The Effect of Board Composition on the Efficiency of Public Listed Companies in Malaysia," Economics Bulletin, AccessEcon, vol. 36(3), pages 1354-1363.
    7. Fadzlan Sufian, 2014. "Which Element Bank Total Factor Productivity Is More Representative: Technological Progress or Efficiency Change?," Vision, , vol. 18(1), pages 9-22, March.
    8. Fadzlan Sufian, 2010. "The impact of the Asian financial crisis on bank efficiency: The 1997 experience of Malaysia and Thailand," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(7), pages 866-889.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manlagñit, Maria Chelo V., 2011. "Cost efficiency, determinants, and risk preferences in banking: A case of stochastic frontier analysis in the Philippines," Journal of Asian Economics, Elsevier, vol. 22(1), pages 23-35, February.
    2. Williams, Jonathan & Nguyen, Nghia, 2005. "Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2119-2154, August.
    3. Ihsan Isik & Emin Akcaoglu, 2006. "An Empirical Analysis of Productivity Developments in "Traditional Banks" : The Initial Post-Liberalization Experience," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 6(1), pages 1-36.
    4. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    5. Okuda, Hidenobu & 奥田, 英信 & オクダ, ヒデノブ & Hashimoto, Hidetoshi & 橋本, 英俊 & ハシモト, ヒデトシ & Murakami, Michiko & 村上, 美智子, 2003. "The Estimation of Stochastic Cost Functions of Malaysian Commercial Banks and Its Policy Implications to Bank Restructuring," CEI Working Paper Series 2003-2, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    6. Chen, Xiaogang & Skully, Michael & Brown, Kym, 2005. "Banking efficiency in China: Application of DEA to pre- and post-deregulation eras: 1993-2000," China Economic Review, Elsevier, vol. 16(3), pages 229-245.
    7. Goergen, Marc & Renneboog, Luc & Correia da Silva, Luis, 2005. "When do German firms change their dividends?," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 375-399, March.
    8. Havrylchyk, Olena, 2006. "Efficiency of the Polish banking industry: Foreign versus domestic banks," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1975-1996, July.
    9. Oded Palmon & Ben J. Sopranzetti, 2017. "On the relationship between the number of a broker’s real estate listings and transaction outcomes," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 65-89, July.
    10. Meryem Duygun Fethi & Mohamed Shaban & Thomas Weyman-Jones, 2009. "Liberalisation, privatisation and the productivity of Egyptian banks: a non-parametric approach," The Service Industries Journal, Taylor & Francis Journals, vol. 31(7), pages 1143-1163, September.
    11. Christos Staikouras & Emmanuel Mamatzakis & Anastasia Koutsomanoli-Filippaki, 2007. "Operating Performance of the Banking Industry: An Empirical Investigation of the South Eastern European Region," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 5(2), pages 245-266.
    12. Peter M. Clarkson & Alex Dontoh & Gordon Richardson & Stephan E. Sefcik, 1992. "The voluntary inclusion of earnings forecasts in IPO prospectuses," Contemporary Accounting Research, John Wiley & Sons, vol. 8(2), pages 601-616, March.
    13. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2017. "Research in finance: A review of influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 188-199.
    14. Muliaman Hadad & Maximilian Hall & Karligash Kenjegalieva & Wimboh Santoso & Richard Simper, 2011. "Banking efficiency and stock market performance: an analysis of listed Indonesian banks," Review of Quantitative Finance and Accounting, Springer, vol. 37(1), pages 1-20, July.
    15. James R. Hines & Niklas Potrafke & Marina Riem & Christoph Schinke, 2019. "Inter vivos transfers of ownership in family firms," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(2), pages 225-256, April.
    16. Mamatzakis, E & Koutsomanoli, A, 2009. "Risk in the EU banking industry and efficiency under quantile analysis," MPRA Paper 22492, University Library of Munich, Germany.
    17. Fadzlan Sufian & Muzafar Shah Habibullah, 2010. "Bank-specific, Industry-specific and Macroeconomic Determinants of Bank Efficiency," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 4(4), pages 427-461, November.
    18. Anastasia I. Koutsomanoli‐Filippaki & Emmanuel C. Mamatzakis, 2011. "Efficiency under quantile regression: What is the relationship with risk in the EU banking industry?," Review of Financial Economics, John Wiley & Sons, vol. 20(2), pages 84-95, May.
    19. Lee, Jeong Yeon & Kim, Doyeon, 2013. "Bank performance and its determinants in Korea," Japan and the World Economy, Elsevier, vol. 27(C), pages 83-94.
    20. Giau Bui, Dien & Chen, Yehning & Lin, Chih-Yung & Lin, Tse-Chun, 2021. "Risk-taking of bank CEOs and corporate innovation," Journal of International Money and Finance, Elsevier, vol. 115(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:asiaec:v:18:y:2004:i:3:p:233-259. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/eaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.