Banks’ Efficiency and Stock Prices in Emerging Markets: Evidence from Malaysia

Journal of Asia-Pacific Business, Vol. 7, No. 4, 2006

Posted: 10 Dec 2009

See all articles by Muhamed Zulkhibri

Muhamed Zulkhibri

Central Bank of Malaysia; Islamic Development Bank - Islamic Research and Training Institute; University of Nottingham

Fadzlan Sufian

affiliation not provided to SSRN

Date Written: 2006

Abstract

This paper empirically investigates the X-efficiency and P-efficiencies of Malaysian banks listed in the Kuala Lumpur Stock Exchange (KLSE) during 2002-2003 by applying a non-parametric Data Envelopment Analysis (DEA) method. We find that during the period of study, the X-efficiency of Malaysian listed banks was on average significantly higher compared to the P-efficiencies. The P-inefficiency was largely due to inefficient production of profits rather than the wrong scale of operations. Our results also suggest that the large banking groups were on average more X-efficient whereas the smaller banking groups were found to be more P-efficient. We further link the X-efficiency and P-efficiency to the respective banks’ share prices and find that the stock prices of Malaysian banks react more towards the improvements in P-efficiency rather than the improvements in X-efficiency.

Keywords: Bank efficiency, DEA analysis, Malaysia

JEL Classification: G21

Suggested Citation

Zulkhibri, Muhamed and Sufian, Fadzlan, Banks’ Efficiency and Stock Prices in Emerging Markets: Evidence from Malaysia (2006). Journal of Asia-Pacific Business, Vol. 7, No. 4, 2006, Available at SSRN: https://ssrn.com/abstract=1521092

Muhamed Zulkhibri (Contact Author)

Central Bank of Malaysia ( email )

Jalan Dato' Onn
P.O. Box 10922
Kuala Lumpur, 50929
Malaysia

Islamic Development Bank - Islamic Research and Training Institute ( email )

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

University of Nottingham ( email )

Department of Economics
University Park
Nottingham, NG7 2RD
United Kingdom

Fadzlan Sufian

affiliation not provided to SSRN ( email )

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