Post-Crisis Productivity Change in Non-Bank Financial Institutions: Efficiency Increase or Technological Progress?

Abstract

By applying the non-parametric Malmquist Productivity Index (MPI), this article attempts to investigate productivity changes of Malaysian Non-Bank Financial Institutions (NBFIs), specifically finance companies and merchant banks, during the post-crisis period of 2001-2004. Our results suggest that Malaysian NBFIs exhibited productivity regress during the post-crisis period, mainly due to efficiency decline rather than technological regress. The results indicate that whereas the merchant banks’ productivity regress was mainly due to technological regress, the finance companies, on the other hand, exhibited productivity progress attributed to technological advancement. Second-stage regression analysis results suggest that efficiency level is positively associated with size, level of capitalization, and the degree of specialization, whereas productivity level is negatively associated with overhead expenditures, risk, and favorable economic conditions.

Keywords: Malmquist Productivity Index, non-bank financial institutions, productivity change

JEL Classification: G21, D24