Social capital and bank performance: An international comparison for OECD countries

Over the last few years there has been a remarkable increase in the number of published studies
dealing with social capital issues. A plethora of studies has also analyzed the efficiency of several banking industries. In this article we merge the two literatures by analyzing how social capital affects bank efficiency for a sample of financial institutions in OECD countries. The analysis is performed using activity analysis techniques, and social capital is controlled for by entering the analysis as an environmental variable. A key feature of our study is the higher complexity of the social capital measure used, compared to other simpler measures hitherto considered in the literature. Results suggest that disregarding the effect of social capital can be irrelevant for some financial institutions, yet the effect cannot be overlooked for others that operate in low-social-capital environments. In these cases, efficiency scores are biased downwards, and controlling for social capital enables these banks to move up in the efficiency rankings.