Financial Conglomeration: Efficiency, Productivity and Strategic Drive

Consolidation in the global banking industry has resulted in the emergence of financial conglomerates that conduct an extensive range of businesses with a group structure. To date, however, few studies have investigated the performance features of such groups. This study aims to extend the literature by evaluating the cost characteristics (scale, scope and x-efficiency), profit efficiency and productivity change of Italian financial conglomerates during the 1990s using both parametric and non-parametric statistical approaches. By using multiple frontier techniques the robustness of the results can be tested (methodological cross-checking). The impact of diversification and growth strategies on cost and profit efficiency is also investigated. The results seem to indicate that Italian banking groups have benefited from a consistent improvement in profit efficiency, while they have not experienced a clear increase in cost efficiency. Indeed, profit efficient banking groups display a high risk-high return profile. The restructuring process and the trend towards conglomeration do not appear to have translated into scale efficiency gains. In contrast, scope economies results give a positive indication of the benefits of diversification. JEL classification: G21; D2.