Determinants of efficiency of non-bank financial institutions: an empirical evidence from Bangladesh

Abstract

Purpose The purpose of this study is to evaluate the effect of some internal features that influence the efficiency of non-bank financial institutions (NBFIs) in Bangladesh. Design/methodology/approach The study selected the top 15 Dhaka Stock Exchange (DSE)-listed NBFIs according to purposive sampling. The study period was from 2016 to 2020. Secondary data were collected from annual reports. The cost-to-income ratio was a dependent variable that was used as a proxy of operational efficiency. The ordinary least square regression technique was applied to measure the impact of firm-specific factors on efficiency. Findings Results showed that number of employees, branch number, firm size and deposit ratio have a significant effect on efficiency at 5% level. The number of branches and employees showed a negative impact, whereas firm size and deposit ratio showed a positive effect on the firms' efficiency. The deposit ratio is negatively related because deposit interest expenses were more than offset by interest income generation through the conversion of deposits into loans. Practical implications The study has practical and policy implications on NBFIs' managers, employees, shareholders, depositors, clients, regulatory authorities and government as efficiency enhancement would bring financial soundness. Originality/value This study shed light on some firm-specific factors that can be changed to increase operational efficiency or reduce the cost-to-income ratio. The novelty of the study is that it identified some significant associations between firm-specific factors and the operational efficiency of NBFIs.

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