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

Does efficiency matter for competition? a case of dual banking industry. Jurnal Ekonomi Malaysia, 53 (3). pp. 163-177. ISSN 2716–6058 (2019)



Abstract

This study provides new empirical evidence on the link between bank performance measured in terms of effciency, 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 effciency
matters for banks to remain viable in the highly competitive market. The study 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 effciencies 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 effciency scores, concentration indexes, and other bank-specifc variables. The estimation
results show the existence of a positive relationship between types of effciency 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 effciently. 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.

Item Type: Article
Keywords: Competition, Concentration, Effciency, Islamic banking, Structure-conduct-performance paradigm, Comparative advantages
Taxonomy: By Subject > Business & Management > Economics
By Subject > Business & Management > Finance
Local Content Hub: Subjects > Business & Management
Depositing User: Eza Eliana Abdul Wahid
Date Deposited: 06 Oct 2021 23:38
Last Modified: 12 Oct 2021 09:22
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