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

Author

Listed:
  • Okuda, Hidenobu
  • Hashimoto, Hidetoshi
  • Murakami, Michiko

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.

Suggested Citation

  • Okuda, Hidenobu & Hashimoto, Hidetoshi & Murakami, Michiko, 2003. "The Estimation of Stochastic Cost Functions of Malaysian Commercial Banks and Its Policy Implications to Bank Restructuring," CEI Working Paper Series 2003-2, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hitcei:2003-2
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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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    References listed on IDEAS

    as
    1. D. S. Prasada Rao & Bart van Ark, 2013. "Introduction," Chapters,in: World Economic Performance, chapter 1, pages 1-6 Edward Elgar Publishing.
    2. Laeven,Luc A., 1999. "Risk and efficiency in East Asian banks," Policy Research Working Paper Series 2255, The World Bank.
    3. 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.
    4. Demirguc-Kunt, Asli & Huizinga, Harry, 2000. "Financial structure and bank profitability," Policy Research Working Paper Series 2430, The World Bank.
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    1. repec:kap:ecopln:v:51:y:2018:i:1:d:10.1007_s10644-016-9200-3 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • 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
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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