The Technical Efficiency of Pension Funds in Indonesia: Do Size and Ownership Make the Difference?

Abstract

This study investigates the technical and scale efficiency of Employer Pension Funds (DPPK). Involving data from 40 pension funds (280 observations), this study applied nonparametric DEA method and Kolmogorov-Smirnov test to measure and evaluate efficiency differences based on size and ownership. The study�s findings show that large pension funds can do better in operational technical efficiency, but are only about the same level as small ones in investments technical efficiency. Large pension funds perform even lower than small pension funds, both in operational and investments scale efficiency. SOE pension funds are found to have higher technical efficiency but lower scale efficiency than Non-SOE pension funds. Diseconomies of scale as well as strict regulations and limited domestic capital market are believed to be the factors hindering large (SOE) pension funds to perform optimally. This study provides empirical evidence regarding differences in the level of technical and scale efficiency in operation and investment management between large pension funds (SOE) and small pension funds (Non-SOE). This study provides important information for management to improve the performance of pension funds.