This study is carried out to compare the relative efficiency, technical efficiency change, technical change, technical progress as well as productivity of individual finance companies in Malaysia. With 32 finance companies and using a sample over the period of 1988 to 1996, the authors examine the patterns of productivity and efficiency changes of the second largest financial institution in Malaysia. Specifically, we estimate total factor productivity and isolate technological advances and technical efficiency changes for each of these 32 finance companies using non-parametric Data Envelopment Analysis (DEA).

The financial institutions all over the globe have undergone massive changes over the last decade as a result of rapid growth in technology, globalization and liberalization as well as financial innovations. Competitions among the banks are stiffer compared to the old days. In such rapidly evolving economic environment, it is critical to identify which institutions are productive and performing efficiently.Banking industries in Malaysia have also undergone massive changes in these recent years, especially with the move towards consolidation of banking industry. Finance Company, the second largest group of financial institutions in Malaysia, has been one of the main keepers of retail savings and deposits in Malaysian financial institutions.

Due to their extensive network of branches, finance companies have developed a sizeable market share in the banking industry. Finance companies have long been regarded as a major source of financing, especially for motor vehicles, hire purchase credit and general consumption credit. Although finance companies play an important role in the Malaysian financial system, they are also exposed to stiff competition especially among the domestic banking institutions or with other foreign banking institutions. Finance companies need to cope with the pressureand challenges that arise from the competitive global environment in light of globalization and liberalization. Thus, they need to reposition themselves to meet these challenges. In the new environment, a newly repositioned finance company is likely to be a niche company.