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Post-merger Banks’ Efficiency and Risk in Emerging Market: Evidence from Malaysia

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  • Fadzlan Sufian
  • Muhd-Zulkhibri Abdul Majid

Abstract

This paper employs a two-stage analysis to investigate the efficiency and impact of risk and non-performing loans of Malaysian banks in the post-merger period by using the non-parametric Data Envelopment Analysis (DEA) method. The results indicate that the merger process has largely benefited the small and medium-sized banks, while large banks have continued to suffer from scale inefficiency. We find that the inclusion of loan-loss provisions has resulted in an increase in the estimated mean efficiency levels for all banks under study. It also appears that the mean Pure Technical Efficiency (PTE) estimates are more sensitive than the mean Scale Efficiency (SE) estimates to the exclusion of risk. The Tobit model was further employed to the panel framework to analyze the factors that may influence the efficiency of Malaysian banks. The results suggest that a bank’s size has a negative impact, while market power has a positive impact on the overall and pure technical efficiency of the Malaysian banks during the period of study

Suggested Citation

  • Fadzlan Sufian & Muhd-Zulkhibri Abdul Majid, 2005. "Post-merger Banks’ Efficiency and Risk in Emerging Market: Evidence from Malaysia," The IUP Journal of Bank Management, IUP Publications, vol. 0(4), pages 16-37, November.
  • Handle: RePEc:icf:icfjbm:v:04:y:2005:i:4:p:16-37
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    1. repec:ibn:ibrjnl:v:10:y:2017:i:10:p:156-168 is not listed on IDEAS
    2. Wahidudin, Ahmad Nazri, 2010. "Technical Efficiency of Commercial Banks in Malaysia: An Application of Window Data Envelopment Analysis," MPRA Paper 45136, University Library of Munich, Germany.

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