TY - JOUR
T1 - Does economic freedom fosters Islamic rural banks efficiency? Evidence from Indonesia
AU - Masrizal,
AU - Sukmana, Raditya
AU - Fianto, Bayu Arie
AU - Gultom, Rifyal Zuhdi
N1 - Publisher Copyright:
© 2022, Emerald Publishing Limited.
PY - 2023/11/10
Y1 - 2023/11/10
N2 - Purpose: This paper aims to examine the relationship between economic freedom and Islamic rural banks' efficiency in the case of Indonesia. Design/methodology/approach: The study covers 40 Islamic rural banks in 34 Indonesian regions from 2014 to 2020. Tobit regression is utilized to expose the impact of economic freedom on the efficiency of Islamic rural banks, and nonparametric frontier data envelopment analysis is used to acquire banks' technical efficiency. Findings: The findings reveal that overall economic freedom has a strong favorable impact on the efficiency of Islamic rural banks. The study’s breakdown components suggest that business freedom, government spending and investment freedom are favorable indicators, whereas government integrity and tax burden are negative indicators, and all indicators agree with previous studies. Practical implications: This research can serve as a guideline for Islamic rural bank management in terms of maintaining financial efficiency. The government should think about the ramifications of financial sector liberalization and reforms, according to these findings. When financial intermediaries operate in a less constrained environment, they are more likely to pursue competitive practices that increase their operating rate and other efficiency metrics. Finally, academics might utilize this information to investigate the economic flexibility of Islamic rural banks. Originality/value: The novelty of this study is in using data envelopment analysis and Tobit regression to identify economic freedom and Islamic rural banks' efficiency. To the best of the authors' knowledge, the study of the role of economic freedom in Islamic rural bank's efficiency is limited, particularly in the context of Indonesia.
AB - Purpose: This paper aims to examine the relationship between economic freedom and Islamic rural banks' efficiency in the case of Indonesia. Design/methodology/approach: The study covers 40 Islamic rural banks in 34 Indonesian regions from 2014 to 2020. Tobit regression is utilized to expose the impact of economic freedom on the efficiency of Islamic rural banks, and nonparametric frontier data envelopment analysis is used to acquire banks' technical efficiency. Findings: The findings reveal that overall economic freedom has a strong favorable impact on the efficiency of Islamic rural banks. The study’s breakdown components suggest that business freedom, government spending and investment freedom are favorable indicators, whereas government integrity and tax burden are negative indicators, and all indicators agree with previous studies. Practical implications: This research can serve as a guideline for Islamic rural bank management in terms of maintaining financial efficiency. The government should think about the ramifications of financial sector liberalization and reforms, according to these findings. When financial intermediaries operate in a less constrained environment, they are more likely to pursue competitive practices that increase their operating rate and other efficiency metrics. Finally, academics might utilize this information to investigate the economic flexibility of Islamic rural banks. Originality/value: The novelty of this study is in using data envelopment analysis and Tobit regression to identify economic freedom and Islamic rural banks' efficiency. To the best of the authors' knowledge, the study of the role of economic freedom in Islamic rural bank's efficiency is limited, particularly in the context of Indonesia.
KW - Economic freedom indexes
KW - Efficiency
KW - Indonesia
KW - Islamic rural banks
UR - http://www.scopus.com/inward/record.url?scp=85130485573&partnerID=8YFLogxK
U2 - 10.1108/IJPPM-11-2021-0660
DO - 10.1108/IJPPM-11-2021-0660
M3 - Article
AN - SCOPUS:85130485573
SN - 1741-0401
VL - 72
SP - 2538
EP - 2558
JO - International Journal of Productivity and Performance Management
JF - International Journal of Productivity and Performance Management
IS - 9
ER -