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Does efficiency matter for competition? A case of dual banking industry

This study provides new empirical evidence on the link between bank performance measured in terms of efficiency, and the degree of competition in the Malaysian dual banking market which comprises Islamic and conventional banking systems over the period of 1997-2016. The focal point of this study is...

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Main Authors: Nafisah Mohammed,, Junaina Muhammad,, Abdul Ghafar Ismail,, Azmafazilah Jauhari,
Format: Article
Language:English
Published: Penerbit Universiti Kebangsaan Malaysia 2019
Online Access:http://journalarticle.ukm.my/14146/1/jeko_53%283%29-13.pdf
http://journalarticle.ukm.my/14146/
http://www.ukm.my/fep/jem/content/2019-3.html
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spelling my-ukm.journal.141462020-02-07T10:59:18Z http://journalarticle.ukm.my/14146/ Does efficiency matter for competition? A case of dual banking industry Nafisah Mohammed, Junaina Muhammad, Abdul Ghafar Ismail, Azmafazilah Jauhari, This study provides new empirical evidence on the link between bank performance measured in terms of efficiency, and the degree of competition in the Malaysian dual banking market which comprises Islamic and conventional banking systems over the period of 1997-2016. The focal point of this study is to investigate whether the type of efficiency matters for banks in remaining viable in the highly competitive market. The study on this subject is important because it compares the effect of market conditions and banks’ conduct on the level of competition for Islamic and conventional banking industries. In this study, we utilize the Panzar-Rosse (PR) H-statistics to represent the competition index. In addition, the Data Envelopment Analysis (DEA) is used to calculate the income and cost efficiencies for the banks in both banking systems. This study employs a panel data model with pooled Ordinary Least Square (OLS) to estimate the relationships of competition index with efficiency scores, concentration indexes, and other bank-specific variables. The estimation results show the existence of a positive relationship between types of efficiency and competition in the dual banking market. This evidence suggests that the existence of an ideal level of concentration and competition is important for banks in adjusting their behavior to suit market conditions and to operate efficiently. Policymakers and regulators may use the knowledge of market structure and performance from this study to formulate policies and strategies that will optimize the number of banks operating in the industry. Policymakers, through Bank Negara Malaysia (BNM), should thus consider the relationship between market structure and bank performance to formulate policies and strategies that will optimize the number of banks operating in the industry. Penerbit Universiti Kebangsaan Malaysia 2019 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/14146/1/jeko_53%283%29-13.pdf Nafisah Mohammed, and Junaina Muhammad, and Abdul Ghafar Ismail, and Azmafazilah Jauhari, (2019) Does efficiency matter for competition? A case of dual banking industry. Jurnal Ekonomi Malaysia, 53 (3). pp. 1-16. ISSN 0127-1962 http://www.ukm.my/fep/jem/content/2019-3.html
institution Universiti Kebangsaan Malaysia
building Tun Sri Lanang Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Kebangsaan Malaysia
content_source UKM Journal Article Repository
url_provider http://journalarticle.ukm.my/
language English
description This study provides new empirical evidence on the link between bank performance measured in terms of efficiency, and the degree of competition in the Malaysian dual banking market which comprises Islamic and conventional banking systems over the period of 1997-2016. The focal point of this study is to investigate whether the type of efficiency matters for banks in remaining viable in the highly competitive market. The study on this subject is important because it compares the effect of market conditions and banks’ conduct on the level of competition for Islamic and conventional banking industries. In this study, we utilize the Panzar-Rosse (PR) H-statistics to represent the competition index. In addition, the Data Envelopment Analysis (DEA) is used to calculate the income and cost efficiencies for the banks in both banking systems. This study employs a panel data model with pooled Ordinary Least Square (OLS) to estimate the relationships of competition index with efficiency scores, concentration indexes, and other bank-specific variables. The estimation results show the existence of a positive relationship between types of efficiency and competition in the dual banking market. This evidence suggests that the existence of an ideal level of concentration and competition is important for banks in adjusting their behavior to suit market conditions and to operate efficiently. Policymakers and regulators may use the knowledge of market structure and performance from this study to formulate policies and strategies that will optimize the number of banks operating in the industry. Policymakers, through Bank Negara Malaysia (BNM), should thus consider the relationship between market structure and bank performance to formulate policies and strategies that will optimize the number of banks operating in the industry.
format Article
author Nafisah Mohammed,
Junaina Muhammad,
Abdul Ghafar Ismail,
Azmafazilah Jauhari,
spellingShingle Nafisah Mohammed,
Junaina Muhammad,
Abdul Ghafar Ismail,
Azmafazilah Jauhari,
Does efficiency matter for competition? A case of dual banking industry
author_facet Nafisah Mohammed,
Junaina Muhammad,
Abdul Ghafar Ismail,
Azmafazilah Jauhari,
author_sort Nafisah Mohammed,
title Does efficiency matter for competition? A case of dual banking industry
title_short Does efficiency matter for competition? A case of dual banking industry
title_full Does efficiency matter for competition? A case of dual banking industry
title_fullStr Does efficiency matter for competition? A case of dual banking industry
title_full_unstemmed Does efficiency matter for competition? A case of dual banking industry
title_sort does efficiency matter for competition? a case of dual banking industry
publisher Penerbit Universiti Kebangsaan Malaysia
publishDate 2019
url http://journalarticle.ukm.my/14146/1/jeko_53%283%29-13.pdf
http://journalarticle.ukm.my/14146/
http://www.ukm.my/fep/jem/content/2019-3.html
_version_ 1662755928707956736
score 13.211869

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