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

See all articles by Fredio O. Tarore

Fredio O. Tarore

University of Indonesia (UI), Faculty of Economics and Business, Department of Management, Students

Muhammad Budi Prasetyo

Universitas Indonesia, Graduate School of Management

Date Written: June 6, 2017

Abstract

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

Tarore, Fredio Oktavioanus and Prasetyo, Muhammad Budi, Diversification and Efficiency in the Indonesian Banking Industry (June 6, 2017). International Journal of Economics and Management (IJEM) 11 (S2): 473 - 486 (2017). Available at SSRN: https://ssrn.com/abstract=3448988

Fredio Oktavioanus Tarore

University of Indonesia (UI), Faculty of Economics and Business, Department of Management, Students ( email )

Campus UI Depok
Depok, West Java
Indonesia

Muhammad Budi Prasetyo (Contact Author)

Universitas Indonesia, Graduate School of Management ( email )

Depok, West Java 16424
Indonesia

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