Over the last few years there has been a remarkable increase in the number of published studies dealingwith social capital issues. A plethora of studies hasalso analyzed the efficiency of several banking industries. In this article we merge the two literatures byanalyzing how social capital affects bank efficiencyfor a sample of financial institutions in OECD countries. The analysis is performed using activity analysistechniques, and social capital is controlled for byentering the analysis as an environmental variable.

Akey feature of our study is the higher complexity ofthe social capital measure used, compared to othersimpler measures hither to considered in the literature. Results suggest that disregarding the effect of socialcapital can be irrelevant for some financial institutions, yet the effect cannot be overlooked for othersthat operate in low-social-capital environments. In these cases, efficiency scores are biased downwards, and controlling for social capital enables these banksto move up in the efficiency rankings.