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Technical efficiency of Islamic and conventional banks with undesirable output: evidence from a stochastic meta-frontier directional distance function
journal contributionposted on 2021-02-15, 22:17 authored by Md SafiullahMd Safiullah, Abul Shamsuddin
© 2020 Elsevier Inc. We examine technical efficiency of Islamic and conventional banks. We contribute to the literature by applying a stochastic meta-frontier directional distance function model with undesirable output, which helps to overcome misestimating technical efficiency. For a sample of banks from 28 countries, we find that a typical Islamic bank is less technically efficient compared to its conventional counterpart. This is due to Islamic banks using less advanced technology compared to conventional banks rather than group-specific technical inefficiency. The findings are robust across six geographical regions of the world.