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Productivity changes and risk management in Indonesian banking: a Malmquist analysis

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  • Muliaman Hadad
  • Maximilian Hall
  • Karligash Kenjegalieva
  • Wimboh Santoso
  • Richard Simper

Abstract

In this study, we utilize a nonparametric efficiency measurement approach which combines the Semi-Oriented Radial Measure-Data Envelopment Analysis (SORM-DEA) approach for dealing with negative data (Emrouznejad et al., 2010) with the Slacks-Based Efficiency Measures (SBM) of Tone (2001, 2002) to analyse productivity changes for Indonesian banks over the period Q1 2003 to Q2 2007. The first part of the analysis showed that average productivity changes for the Indonesian banking industry tended to be driven by technological progress rather than by frontier shift, although a relatively stable pattern was exhibited for most of the period. With respect to the risk management analysis, most of the balance sheet variables were shown to have had the expected impact on Risk Management Efficiency (RME), with the state-owned grouping exhibiting the highest degree of RME and the listed and Islamic banks outperforming their nonlisted and conventional bank counterparts, respectively. A strategy based on the gradual adoption of newer technology, with a particular focus on internal risk management enhancement, seems to offer the highest potential for boosting the productivity of the financial intermediary operations of Indonesian banks.

Suggested Citation

  • Muliaman Hadad & Maximilian Hall & Karligash Kenjegalieva & Wimboh Santoso & Richard Simper, 2011. "Productivity changes and risk management in Indonesian banking: a Malmquist analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 21(12), pages 847-861.
  • Handle: RePEc:taf:apfiec:v:21:y:2011:i:12:p:847-861
    DOI: 10.1080/09603107.2010.537636
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    Cited by:

    1. Richard Simper & Maximilian J.B. Hall & Wenbin B. Liu & Valentin Zelenyuk & Zhongbao Zhou, 2014. "How Relevant is the Choice of Risk Management Control Variable to Non-parametric Bank Profit Efficiency Analysis?," CEPA Working Papers Series WP122014, School of Economics, University of Queensland, Australia.
    2. Chan, Sok-Gee & Koh, Eric H.Y. & Zainir, Fauzi & Yong, Chen-Chen, 2015. "Market structure, institutional framework and bank efficiency in ASEAN 5," Journal of Economics and Business, Elsevier, vol. 82(C), pages 84-112.

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