Diversification and Efficiency in the Indonesian Banking Industry
International Journal of Economics and Management (IJEM) 11 (S2): 473 - 486 (2017)
14 Pages Posted: 17 Sep 2019
Date Written: June 6, 2017
The global financial crisis in 2008 caused banks to look for business models that can increase efficiency levels. Several previous studies of developed markets suggest that diversification has a positive effect on efficiency. This study aims to analyze the effect of diversification on Indonesian banking efficiency as one of the emerging markets. We used stochastic frontier analysis (SFA) to measure efficiency; the results showed that the majority of Indonesian banks operate at relatively low efficiency. Using the panel data, this study found the same result; diversification can improve Indonesian bank efficiency. Diversification can optimize the output without additional input costs that cause an increase in Indonesian bank efficiency. Other factors such as the level of bank capital also have an impact on increased efficiency. In addition, the influence of bank size and the global financial crisis is not statistically significant.
Keywords: diversification, efficiency, global financial crisis, banking
JEL Classification: G01, G21
Suggested Citation: Suggested Citation