The Impact of Financial Crisis on the Efficiency of Superannuation Funds: Evidence From Australia

Abstract

Though superannuation funds play an important role in any economy, little is known about their efficiency as the literature on production efficiency is mainly concerned with banks and insurance companies. This paper analyses the production efficiency of retail superannuation funds in Australia from 2005 to 2009. The estimates of production efficiency were obtained using Data Envelopment Analysis and thereafter regressed on contextual variables using the Tobit model. The study finds that fund characteristics, like size and proportion of funds invested in non-risk avenues, have significant positive association while diversification and financial crisis each have a significant negative association, with the production efficiency of retail superannuation funds in Australia. The findings are relevant to a government appointed major review of the superannuation industry tasked to examine, inter alia, the efficiency of superannuation funds. From the applied or practice perspective, the findings could help firms within the industry determine merger or acquisition targets.

Keywords: retail superannuation funds, Australia, APRA, production efficiency

JEL Classification: M40, M41