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The Estimation of Stochastic Cost Functions of Malaysian Commercial Banks and Its Policy Implications to Bank Restructuring

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  • Okuda, Hidenobu
  • Hashimoto, Hidetoshi
  • Murakami, Michiko
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    Abstract

    The present paper examines stochastic cost functions of Malaysian commercial banks from 1991 to 1997 periods and catches the changes in their management structure and technical efficiency. Then, we also discuss policy implications for bank integration and competition policy which is the part of current financial reform that reinforces the banking sector. However, little microeconomic analysis of the Malaysian banking business has been conducted. The only known serious academic research in this area is by (Katib and Mathews, 2000). The present paper contributes to the expansion of their study in two respects. Firstly, we have estimated the cost function, availing ourselves of SEA based on a parametric approach. Secondly, our model also includes as a factor the existence of bad debts. According to our results, we observed economies of scale clearly, but economies of scope and technological progress were not observed. Regarding the policy implication, the result of our analysis suggests strongly that the current policy is appropriate.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13932/1/wp2003-2a.pdf
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    Bibliographic Info

    Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2003-2.

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    Length: 34 p.
    Date of creation: Feb 2003
    Date of revision:
    Handle: RePEc:hit:hitcei:2003-2

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    Related research

    Keywords: Economies of scale; Economies of scope; Technical efficiency; Cost function; Banking; Malaysia; Financial liberalization;

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    1. Demirguc-Kunt, Asli & Huizinga, Harry, 2000. "Financial structure and bank profitability," Policy Research Working Paper Series 2430, The World Bank.
    2. Ghani, Ejaz & Suri, Vivek, 1999. "Productivity growth, capital accumulation, and the banking sector - some lessons from Malaysia," Policy Research Working Paper Series 2252, The World Bank.
    3. Laeven, Luc, 1999. "Risk and efficiency in East Asian banks," Policy Research Working Paper Series 2255, The World Bank.
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