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/ http://journalarticle.ukm.my/14146/ http://journalarticle.ukm.my/14146/1/jeko_53%283%29-13.pdf

id	ukm-14146
recordtype	eprints
spelling	ukm-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
repository_type	Digital Repository
institution_category	Local University
institution	Universiti Kebangasaan Malaysia
building	UKM Institutional Repository
collection	Online Access
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/ http://journalarticle.ukm.my/14146/ http://journalarticle.ukm.my/14146/1/jeko_53%283%29-13.pdf
first_indexed	2023-09-18T20:06:26Z
last_indexed	2023-09-18T20:06:26Z
_version_	1777407190098771968

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

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