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Financial Disruptions and the Evolution of Malaysian Banking Sector’s Efficiency: A Non-Stochastic Frontier Approach

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  • Fadzlan Sufian
  • Muzafar Shah Habibullah

Abstract

In the mid-1990s, the East Asian countries experienced severe financial crisis, followed by deep economic downturns. A variety of methodologies have been used to explain the Asian financial crisis. However, the impact of the Asian financial crisis of 1997 on the efficiency of the financial industry has not been studied yet. This paper investigates the performance of the Malaysian banking sector around the Asian financial crisis with the emphasis on the domestic versus foreign banks debate. The efficiency estimates of individual banks are evaluated using the non-parametric Data Envelopment Analysis (DEA) method. The results suggest that the foreign banks have exhibited higher technical efficiency compared to their domestic bank counterparts. However, the results suggest also that the foreign banks were severely affected by the Asian financial crisis, implying that they are not insulated from unexpected events like the Asian financial crisis of 1997.

Suggested Citation

  • Fadzlan Sufian & Muzafar Shah Habibullah, 2010. "Financial Disruptions and the Evolution of Malaysian Banking Sector’s Efficiency: A Non-Stochastic Frontier Approach," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 166-186.
    • Handle: RePEc:bas:econst:y:2010:i:2:p:166-186
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    More about this item

    JEL classification:

    • 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

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