Is Ownership Structure Priced on the (Islamic) Rural Bank's Efficiency? Lessons Learned from Indonesia

This research aims to examine whether ownership structure, which is represented by both ownership concentration and type of ownership, affects technical efficiency of both Islamic and conventional rural bank in the biggest Muslim population country, Indonesia. In doing so, the first stage of this research estimates and compares the efficiency score of the two rural bank's types using Stochastic Frontier Analysis (SFA). The findings suggest that Islamic Rural Bank (BPRS) statistically has higher efficiency compared to its conventional counterparts (BPR). In the second stage, using Generalized Linear Model, this research concludes that ownership concentration is priced on the BPRS's efficiency, while it is not the case in the BPR's. The results, however, fizzle out to prove the relationship between type of ownership and efficiency. Furthermore, from the perspective of BPRS, appealing evidence appears in the nonlinearity effect of ownership concentration to its efficiency. Thereof, the fact that the relationship holds in quadratic and cubic polynomials shape points out that expropriation and alignment effects are jointly embedded in the BPRS ownership-efficiency relationship. It further allows derivation of optimum point of Islamic Rural Bank's ownership structure, which might be useful for policy recommendations