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Working Paper

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.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Whalen, Gary. 1983. “Holding Company Organizational Form and Efficiency.” Federal Reserve Bank of Cleveland, Working Paper No. 83-02.