Relationship Lending, Distance and Efficiency in a Heterogeneous Banking System

During the last decades banks have progressively moved towards centralized and hierarchical organizational structures. Therefore, the investigation of the determinants of bank efficiency and relationships with the functional distance between the bank head-quarter and operational units have become increasingly important. This paper extends the literature on bank efficiency examining the impact of different bank business models on the efficiency of the Italian banks, distinguished by size and type over the period 2006-2009. Using a stochastic frontier approach, the intertemporal relationships between bank efficiency and some key variables, as distance and income diversification (used as proxies of different organizational banking models) are investigated. Results suggest that organizational structure significantly affects cost efficiency, being different between bank groups.