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Economic freedom and bank efficiency: does ownership and origins matter?

Author

Listed:
  • Fadzlan Sufian
  • Muzafar Shah Habibullah

Abstract

Purpose - – The paper aims to explore the impact of economic freedom on the efficiency of the Malaysian banking sector. Design/methodology/approach - – The analysis is confined into two stages. In the first stage, the bias-corrected data envelopment analysis method is used to compute the efficiency of individual banks. Then bootstrap regressions are used to examine the impact of economic freedom on bank efficiency, while controlling for the potential impacts of contextual variables. Findings - – It was found that greater freedom to start new businesses tend to impede the efficiency of banks operating in the Malaysian banking sector. The results indicate that restrictions on the activities of which banks could undertake exert negative impact on their efficiency levels. The empirical findings seem to support for official regulation and supervision of banks by setting the limits on activities which banks could undertake. In addition evidence supporting for government interventions in the foreign exchange and money markets was found. Originality/value - – The purpose of the present paper is to extend the earlier works on the performance of the banking sector in a developing economy and establish empirical evidence on the impact of economic freedom. Although empirical evidence which examines the performance of banking sectors is abundant in the literature, to the best of our knowledge, virtually nothing has been published to address the impact of economic freedom.

Suggested Citation

  • Fadzlan Sufian & Muzafar Shah Habibullah, 2014. "Economic freedom and bank efficiency: does ownership and origins matter?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 22(3), pages 174-207, July.
    • Handle: RePEc:eme:jfrcpp:v:22:y:2014:i:3:p:174-207
    DOI: 10.1108/JFRC-01-2013-0001
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    Citations

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    Cited by:

    1. Shailesh Rastogi & Rajani Gupte & R. Meenakshi, 2021. "A Holistic Perspective on Bank Performance Using Regulation, Profitability, and Risk-Taking with a View on Ownership Concentration," JRFM, MDPI, vol. 14(3), pages 1-22, March.
    2. Çağatay KARAKÖY & Alptekin ULUTAŞ & Darjan KARABASEVIC & Salim ÜRE & Ali Oğuz BAYRAKÇIL, 2023. "The Evaluation of Economic Freedom Indexes of EU Countries with a GREY Hybrid MCDM Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 129-144, March.
    3. Mavrakana, Christina & Psillaki, Maria, 2019. "Do economic freedom and board structure matter for bank stability and bank performance?," MPRA Paper 95709, University Library of Munich, Germany.

    More about this item

    Keywords

    Malaysia; Banks; Bootstrap DEA; Bootstrap regression; Economic freedom; G21; G28;
    All these keywords.

    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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