Efficiency determinants: evidence from Italian mutual banks

What is it about?

The scope of this paper is to analyze the determinants of BCCs’ efficiency in the 2006–2011 period. In the first step of the study, a stochastic cost frontier is used to yield bank efficiency. Then the cost efficiency becomes the dependent variable of fixed and random effect models. We find that BCC cost efficiency is positively affected by market concentration and demand density and inversely related to branching. While the evidence regarding the credit quality is inconclusive for all BCCs, the sensitivity analysis shows that the risk in local markets is a source of BCC cost inefficiency.

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