Holding Company Organizational Form and Efficiency

Researchers generally have assumed that the impact of multibank holding company (MBHC) affiliation on subsidiary bank efficiency would not vary across holding company groups. Several writers have argued that this view is incorrect and may explain the mixed and inconclusive findings on affiliation-related efficiencies reported in many empirical studies. In particular, Fraas has suggested that differences in MBHC organizational centralization may cause' differences in subsidiary bank performance and that the failure to control forstructural variation may bias estimates of affiliate- independent bank efficiency differentials toward insignificance. This study explores the impact of MBHC organizational centralization on subsidiary bank efficiency, using survey data on holding company structure and a profit-function approach. The evidence suggests that differences in MBHC structure do result in differences in affiliate efficiency.