AN ANALYSIS OF THE EFFICIENCY OF AUSTRALIAN SUPERANNUATION FUNDS

Author: Yen Bui

  • Thesis download: available for open access on 18 Jun 2017.

Bui, Yen, 2015 AN ANALYSIS OF THE EFFICIENCY OF AUSTRALIAN SUPERANNUATION FUNDS, Flinders University, Flinders Business School

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Abstract

This study investigates the relative economic efficiency of Australian superannuation funds using Data Envelopment Analysis (DEA), a non-parametric linear programming technique. The study has two phases. The first phase, which covers a seven-year period from 2005 to 2012, estimates the efficiency scores of Australian superannuation funds. The sample in the first phase is 183 superannuation funds, which approximates 79% of APRA-regulated active funds as at 30 June 2012. The second phase, spanning a two-year period from 2010 to 2012, investigates the drivers that may influence superannuation fund efficiency. The sample in the second phase is 145 superannuation funds, which approximates 63% of active funds. The number of sample superannuation funds is reduced in the second phase due to data availability issues. The first phase findings indicate that most Australian superannuation funds are inefficient relative to the efficiency frontier, an internal benchmark established by efficient funds. In the second phase, the study investigates the effect of trustee board structure, risk management mechanism and investment activities on efficiency, as identified through the structure, conduct and performance (SCP) framework of the Australian superannuation system. The results in the second phase reveal that board size, insurance cover and investment options have marginally negative relationships with efficiency scores. By contrast, female directors and investments in international shares have positive relationships with efficiency scores. The findings from the first phase of the study highlight the need to improve the efficiency of Australian superannuation funds by reducing overall fund expenses and volatility of investment returns to narrow the gap in performance between efficient and inefficient funds. The finding on board size indicates that the number of directors on the board is not a driver of superannuation fund efficiency performance. This result is consistent with the argument that the quality of the board and other unobserved factors such as board day-to-day activities have more effect on an organisation’s performance. The finding also implies that smaller board size may be more beneficial to superannuation fund members. Similarly, simplified low-cost insurance offers as well as fewer investment options may enhance the efficiency performance of superannuation funds. The positive association between female directors and efficiency scores support the current trend in Australia and elsewhere in regards to board diversity and the appointment of female board directors. Efficiency may also be enhanced by the diversification of superannuation asset investments into the global financial markets.

Keywords: Superannuation, efficiency, data envelopment analysis
Subject: Business thesis

Thesis type: Doctor of Philosophy
Completed: 2015
School: Flinders Business School
Supervisor: Professor Sarath Delpachitra