Measuring the efficiency of investment banks in Malaysia: An application of data envelopment analysis (DEA) approach

Abstract

The efficiency of the banking system has been one of the major issues in the new monetary and financial environment whereby they are not easily being measured, since their products and services are of an intangible nature. This research investigated on the capability of a unit in utilizing input to maximize the output in measuring the efficiency of Malaysian Investment banking operations for the financial year ended 2006, 2007 and 2008. Emphasis was placed on two questions: are the investment banks in Malaysia efficient and productive and which investment banks can serve as the efficiency reference set? The data are obtained from the income statements and end-of-year balance sheets of the selected nine (9) investment banks in Malaysia. The study uses a non-parametric method called data envelopment analysis (DEA) to obtain the relative efficiency of each bank. The results revealed: (1) Only 33.33% of the selected investment banks met the efficiency and productivity level and served as the efficiency reference set for the relatively inefficiency stations for potential improvement, (2) other remaining 66.67% investment banks showed a dynamic efficiency and productivity caused by the economic cycle that occurred throughout the last 3 years.