Determinants of Efficiency in the Malaysian Banking Sector: Evidence from Semi-parametric Data Envelopment Analysis Method

Abstract

This article follows Simar and Wilson’s (2007 , Journal of Econometrics, 136(1), 31–64) two-stage procedure to analyse the efficiency of the Malaysian banking sector. In the first stage, we employ the data envelopment analysis (DEA) method to compute the efficiency of individual banks during the period 1999–2008. We then use panel regressions to examine the impact of ownership on bank efficiency while controlling for the potential impacts of contextual variables. The DEA results indicate an increase in efficiency over the sample period. The results from the panel regression suggest that productive efficiency is positively related to bank size, capitalization and foreign ownership. On the other hand, the publicly listed and government-owned banks have been relatively inefficient in their intermediation function.