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Globalization and bank efficiency nexus: empirical evidence from the Malaysian banking sector

Fadzlan Sufian (Taylor’s Business School, Taylor’s University, Subang, Malaysia)
Fakarudin Kamarudin (Faculty of Economics and Management, Universiti Putra Malaysia, Serdang, Malaysia)
Annuar Md. Nassir (Faculty of Economics and Management, Universiti Putra Malaysia, Serdang, Malaysia)

Benchmarking: An International Journal

ISSN: 1463-5771

Article publication date: 3 July 2017

Abstract

Purpose

The purpose of this paper is to provide a new empirical evidence on the impact of economic globalization on the efficiency of the banking sector. The paper also investigates to what extent the internal (i.e. bank specific characteristics) and external (i.e. macroeconomic conditions) factors influence the efficiency of banks while controlling for the impact of the different dimensions of globalization.

Design/methodology/approach

The analysis is confined into two stages. In the first stage, the authors employ the bias-corrected data envelopment analysis method to compute the efficiency of individual banks during the period 1999-2012. The authors then use bootstrap regressions to examine the impact of economic globalization on bank efficiency, while controlling for the potential impacts of contextual variables.

Findings

The empirical findings indicate that the impacts of personal contacts, information flows, and cultural proximity seem to work in favor of Malaysian banks’ efficiency. A plausible reason could be due to the fact that capital account liberalization is usually accompanied by liberalization of the financial services sector, resulting in a greater competition and subsequently eroding monopolistic profits. The empirical findings also bring forth the importance of and political globalization in determining the efficiency of banks operating in the Malaysian banking sector.

Originality/value

The present study aims to provide for the first time empirical evidence on the performance of the banking sector and to establish new empirical evidence on the impact of globalization. The empirical evidence on the impact of globalization on the banking sector is completely missing from the literature.

Keywords

Acknowledgements

The authors would like to thank the editors and the anonymous referees of the journal for constructive comments and suggestions, which have significantly helped to improve the contents of the paper. Furthermore, special thanks to Fundamental Research Grant Scheme (FRGS) Vot No. 5524716 sponsored by Malaysian Ministry of Higher Education and Universiti Putra Malaysia Grant IPM Vot No. 9473700 sponsored by Universiti Putra Malaysia as an organizations that funded the research. The usual caveats apply.

Citation

Sufian, F., Kamarudin, F. and Md. Nassir, A. (2017), "Globalization and bank efficiency nexus: empirical evidence from the Malaysian banking sector", Benchmarking: An International Journal, Vol. 24 No. 5, pp. 1269-1290. https://doi.org/10.1108/BIJ-09-2014-0090

Publisher

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Emerald Publishing Limited

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