Diversification and efficiency in the Indonesian banking industry

Fredio Oktavianus Tarore, Muhammad Budi Prasetyo

Research output: Contribution to journalArticlepeer-review


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 the 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 has an impact on increased efficiency. In addition, the influence of bank size and global financial crisis is not statistically significant.

Original languageEnglish
Pages (from-to)473-486
Number of pages14
JournalInternational Journal of Economics and Management
Issue number2 Special Issue
Publication statusPublished - 2017


  • Banking
  • Diversification
  • Efficiency
  • Global financial crisis


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