Title: Economic freedom and bank efficiency nexus
Author: Fadzlan Sufian
Address: Taylor's Business School, Taylor's University, Taylor's Lakeside Campus, 1 Jalan Taylor's, 47500 Subang Jaya, Selangor Darul Ehsan, Malaysia
Abstract: The paper provides empirical evidence on the impact of economic freedom on bank efficiency. By employing the data envelopment analysis (DEA) method, we compute the efficiency of the Indonesian banking sector during the post-Asian financial crisis period of 1999-2008. The empirical findings from the DEA method indicate an increase in the efficiency of the Indonesian banking sector. We find a positive relationship between capitalisation and liquidity and bank efficiency. On the other hand, the results suggest a negative relationship between credit risk and overhead expenses and bank efficiency. The results indicate a positive relationship between business and monetary freedoms and bank efficiency, while the relationship between technical efficiency and financial freedom seems to be negative.
Keywords: economic freedom; bank efficiency; DEA; data envelopment analysis; panel regression analysis; Indonesia; banking industry; capitalisation; liquidity; credit risk; overhead expenses; technical efficiency.
Int. J. of Monetary Economics and Finance, 2013 Vol.6, No.2/3, pp.150 - 185
Available online: 13 Sep 2013