Malmquist Productivity Change of Mutual Funds in Tanzania

Abstract

This study utilized Data Envelopment Analysis to assess the efficiency of six mutual funds in Tanzania spanning from 2018 to 2022. The analysis explores efficiency changes, technical advancements, scale efficiency, and total factor productivity. The results revealed significant trends of Mutual funds, on average, demonstrate a 3 percent increase in total factor productivity, signifying enhanced output relative to inputs attributed to improved management practices, technology integration, and operational enhancements. Conversely, technical efficiency change experiences by 2.7 percent decline, indicating that certain funds struggle to optimize inputs, potentially due to shifts in management strategies, resource allocation, or market variations. Further differentiation between large and small mutual funds reveals that larger entities exhibit more favorable productivity changes. This disparity is ascribed to economies of scale, improved investment prospects, and reduced transaction costs for larger funds. The study underscores substantial implications for mutual fund managers and the industry. Positive improvements in efficiency change, scale efficiency change, and total factor productivity indicated an overall positive trend in the mutual fund industry. Emphasizing economies of scale can enhance efficiency and overall outcomes, urging regulatory bodies to provide guidance on achieving economies of scale and fostering better practices. This research offers valuable insights into the mutual fund landscape, emphasizing the critical importance of adapting to evolving market dynamics and incorporating technology to maximize efficiency and success.