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Technical efficiency of Islamic and conventional banks with undesirable output: Evidence from a stochastic meta-frontier directional distance function

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  • Safiullah, Md
  • Shamsuddin, Abul

Abstract

We examine technical efficiency of Islamic and conventional banks. We contribute to the literature by applying a stochastic meta-frontier directional distance function model with undesirable output, which helps to overcome misestimating technical efficiency. For a sample of banks from 28 countries, we find that a typical Islamic bank is less technically efficient compared to its conventional counterpart. This is due to Islamic banks using less advanced technology compared to conventional banks rather than group-specific technical inefficiency. The findings are robust across six geographical regions of the world.

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  • Safiullah, Md & Shamsuddin, Abul, 2022. "Technical efficiency of Islamic and conventional banks with undesirable output: Evidence from a stochastic meta-frontier directional distance function," Global Finance Journal, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:glofin:v:51:y:2022:i:c:s104402832030017x
    DOI: 10.1016/j.gfj.2020.100547
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    More about this item

    Keywords

    Technical inefficiency; Islamic banking; Undesirable output; Stochastic meta-frontier; Directional distance function;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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