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SIZE AND RETURNS TO SCALE OF THE ISLAMIC BANKING INDUSTRY IN MALAYSIA: FOREIGN VERSUS DOMESTIC BANKS

International Journal of Economics, Management and Accounting

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Title SIZE AND RETURNS TO SCALE OF THE ISLAMIC BANKING INDUSTRY IN MALAYSIA: FOREIGN VERSUS DOMESTIC BANKS
 
Creator Sufian, Fadzlan
 
Description This paper investigates the efficiency of the Malaysian Islamic banking sector during the period of 2001-2004. The efficiency estimates of individual banks are evaluated using the non-parametric Data Envelopment Analysis (DEA) method. The method allows for the decomposition of the technical (overall) efficiency into its pure technical and scale efficiency components. In accordance with Islamic financial system principles, the intermediation approach is applied to the specification of input-output variables. The findings suggest that scale inefficiency dominates pure technical inefficiency in the Malaysian Islamic banking sector, implying that Malaysian Islamic banks have been operating at the wrong scale of operations. We have also found that the domestic Islamic banks have exhibited higher technical efficiency compared to that of their foreign peers. Although the findings suggest that the foreign Islamic banks’ technical efficiency is lower compared to its domestic counterparts, the results seem to suggest that the foreign Islamic banks have been relatively more efficient in controlling their operating costs, thus implying that the foreign banks’ inefficiency was mainly attributed to scale.JEL classification: G21, G28Key words: Islamic banks efficiency, Data envelopment analysis (DEA), Malaysia.
 
Publisher Kulliyyah of Economics and Management Sciences
 
Date 2013-03-01
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/122
 
Source International Journal of Economics, Management and Accounting; Vol 14 No 2 (2006)
2462-1420
 
Language eng
 
Relation http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/122/103