Productivity Growth Amongst Malaysian Finance Companies, 1988-1996

Productivity measures are indicators of success, by which the performance of any individual finance company as well as the industry can be gauged. There have been rapid changes in financial industry structure occurring around the world since 19701s. In Asia, countries are restructuring banking regulations and encouraging financial liberalization, in an attempt to increase financial industry efficiency. The financial industry has also undergone multiple growth in new products and facilities in recent years as a result of advances in technology and telecommunications. These developments would have an impact on the competitiveness and hence on the performances of any financial institutions, particularly the Malaysian finance companies. The aim of this study is to investigate the productivity growth amongst the finance companies in Malaysia from 1988 to 1996. In this context, the study attempts to evaluate the technical efficiency, efficiency change, technical change and productivity of finance companies using the Malmquist index approach and Data Envelopment Analysis. The study of this kind is particularly important to the producers, depositors or customers, investors as well as legislators. The results indicate that during the period of this study, there is an improvement in productivity of Malaysian finance companies. The productivity growth is mainly associated with the technical change effect rather then technical efficiency change. It also appears that the trend rate of productivity growth accelerated significantly after 1991, following the earlier recession. The results support the Central Bank's call for the financial consolidation of the finance companies.

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