DOES OWNERSHIP STRUCTURE MATTER? A COST EFFICIENCY STUDY OF LIFE INSURANCE FIRMS IN INDONESIA
Keywords:
Insurance industry, Efficiency, Stochastic Frontier Analysis, Time Varying Model
Abstract
This paper is about the cost and profit efficiency of Indonesia’s life insurance industry. Using data from 2010–2014, we compare cost and profit efficiency among local and joint venture insurers. Our empirical analysis, based on a time-invariant translog cost model, reveals mean cost allocation and profit efficiency scores of 0.36 and 0.52, respectively. Interestingly, we find that domestic insurers are more cost efficient compared to joint venture insurers; however, joint venture insurers maximize profit more.
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References
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Yahoo Finance. (n.d.). Indeks Harga Saham gabungan (IHSG). Retrieved from https://finance.yahoo.com/quote/%5EJKSE?p=%5EJKSE
Abidin, Z., and Cabanda, E. (2012). Efficiency of non-life insurance in Indonesia. Journal of Economics, Business and Accountancy Ventura, 14(3), 197-202.
Battese, G. E., and Coelli, T. J. (1992). Frontier production functions, technical efficiency and panel data: With application to paddy farmers in India. Journal of Productivity Analysis, 3(1–2), 153–169. https://doi.org/10.1007/BF00158774
Berger, A., and Humphrey, D. (1992). Measurement and Efficiency Issues in Commercial Banking (Vol. I). University of Chicago Press. Retrieved from http://www.nber.org/chapters/c7237
Berger, A., and Mester, L. (1997). Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions? Journal of Banking and Finance, 21, 895–947. Retrieved from http://dx.doi.org/10.1016/S0378-4266(97)00010-1
Coelli, T., Estache, A., Perelman, S., and Trujillo, L. (2003). A Primer on Efficiency Measurement for Utilities and Transport Regulators (Vol. 1). The World Bank. Retrieved from http://documents.worldbank.org/curated/en/979041468765575437/A-primer-on-efficiency-measurement-for-utilities-and-transport-regulators
Coelli, T., Rao., D. S. P., O’Donnel, C. J., and Batesse, G. E. (2005). An Introduction to Efficiency and Productivity Analysis (2nd ed). https://doi.org/10.1007/978-1-4615-5493-6
Cummins, J. D., and Weiss, M. A. (1998). Analyzing Firm Performance in the Insurance Industry Using Frontier Efficiency Methods. The Wharton On Financial Institutions Center, 98–22.
Diacon, S. ., Starkey, K., and O’Brien, C. (2002). Size and Efficiency in European Long- term Insurance Companies: An International Comparison. The Geneva Papers on Risk and Insurance Issues and Practice, 27(3), 444–466.
Eling, M., and Luhnen, M. (2010). Efficiency in the international insurance industry: A cross-country comparison. Journal of Banking and Finance, 34, 1497–1509. https://doi.org/10.1016/j.jbankfin.2009.08.026
Biener, C., and Eling, M. (2017). Organization and efficiency in the international insurance industry: A cross-frontier analysis. European Journal of Operational Research, 221, 454-488. https://doi.org/10.1016/j.ejor.2012.03.037
Fenn, P., Vencappa, D., Diacon, S., Klumpes, P., and O’Brien, C. (2008). Market structure and the efficiency of European insurance companies: A stochastic frontier analysis. Journal of Banking and Finance, 32(1), 86–100. https://doi.org/10.1016/j.jbankfin.2007.09.005
Hallman, L. (2017). The rolling window method: Precisions of financial forecasting. Royal Institute of Technology, School of Engineering Sciences, KTH Royal Institute of Technology.
Hu, X., Zhang, C., Hu, J., and Zhu, N. (2009). Analyzing efficiency in the Chinese life insurance industry. Management Research News, 32(10), 905–920. https://doi.org/10.1108/01409170910994123
Indonesian Labour Survey. (2015). Rata-rata Upah/Gaji Bersih Sebulan Buruh/Karyawan/Pegawai Menurut Lapangan Pekerjaan Utama (rupiah). Retrieved from http://www.bi.go.id/sdds/SeriesGroup/05_woe_new.xls
Kodde, D. A, and Palm, F. C. (1986). Wald Criteria for Jointly Testing Equality and Inequality Restrictions. Econometrica, 54(5), 1243-1248. https://doi.org/10.2307/1912331
Kumbhakar, S. ., and Lovell, C. A. (2000). Stochastic Frontier Analysis. Cambridge University Press.
Kumbhakar, S. C., Wang, H.-J., and Horncastle, A. (2015). A Practitioner’s Guide to Stochastic Frontier Analysis Using Stata. Cambridge University Press.
Lozano, A. (1997). Profit efficiency for Spanish savings banks. European Journal of Operational Research, 98(2), 381–394. https://doi.org/10.1016/S0377-2217(97)00354-8
Maudos, J., Pastor, J. M., and Serrano, L. (1999). Total factor productivity measurement and human capital in OECD countries. Economics Letters, 63(1), 39–44. https://doi.org/10.1016/S0165-1765(98)00252-3
Mulyaningsih, T., Daly, A., and Miranti, R. (2015). Foreign participation and banking competition: Evidence from the Indonesian banking industry. Journal of Financial Stability, 19, 70–82. https://doi.org/10.1016/j.jfs.2015.02.001
Otoritas Jasa keuangan. (2017). Laporan perasuransian 2017. Retrieved from http://www.ojk.go.id/id/kanal/iknb/data-dan-statistik/asuransi/Pages/Perasuransian-Indonesia-2017.aspx
Rai, A. (1996). Cost efficiency of international insurance firms. Journal of Financial Services Research, 10(3), 213–233. https://doi.org/10.1007/BF00114085
Republik Indonesia. (2016). Nota Keuangan Beserta Rancangan Anggaran Pendapatan dan Belanja Negara Tahun Anggaran 2016. Retrieved from https://www.kemenkeu.go.id/media/5312/nkrapbn2016.pdf
Simu, N dan A. Yulistyanto. (2013). Analisis Komparasi Kinerja Keuangan Perusahaan Asuransi Jiwa Nasional Dan Perusahaan Asuransi JiwaPatungan. Call For Paper Forum Manajemen Indonesia (FMI) Ke-5. Pontianak, Indonesia. Oktober 23-26.
Viverita, Wulandari, S., and Cabanda, E. (2016). Determinants of Cost Efficiency and Productivity Growth of the Indonesian Insurance Industry. International Journal of Knowledge-Based Organizations (IJKBO), 6(2), 70-82.
Yahoo Finance. (n.d.). Indeks Harga Saham gabungan (IHSG). Retrieved from https://finance.yahoo.com/quote/%5EJKSE?p=%5EJKSE
Published
2019-10-15
How to Cite
Wicaksono, R., & Mulyaningsih, T. (2019). DOES OWNERSHIP STRUCTURE MATTER? A COST EFFICIENCY STUDY OF LIFE INSURANCE FIRMS IN INDONESIA. Buletin Ekonomi Moneter Dan Perbankan, 22(3), 367 - 382. https://doi.org/10.21098/bemp.v22i3.957
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
