Measuring social efficiency: the case of Italian Mutual Banks

Recent decades have seen lively debate on the definition and measurement of the multiple Corporate Social Performance (CSP) dimension. Within this framework, this study aims to determine a bank-specific Social Efficiency Score (SES) using Data Envelopment Analysis (DEA) on a sample of 82 Italian Mutual Banks (IMBs) in 2010-2011. The comparison between SESs, obtained by DEA (deaSES) and equal weight aggregation (ewSES) highlights a remarkable difference in ranking. With the aggregation method, if banks underperform on some CSP dimensions, they will tend to have low ewSES. Otherwise, DEA, by assigning a weighted variable to each CSP dimension, reduces the weight of the poor performance dimension and increases the weight of the highest one. The distinctive features of DEA are both its endeavour to determine the optimal trade-off between input and social output, and its lower “sensitivity” to weight changes. In order to contribute to the large body of academic literature focused on the relationship between CSP and financial performance, the SES, determined through the input (bank efficiency variable) and output (CSP dimension proxied) DEA framework, is combined with financial performance measures (size, ROA, bank productivity, credit risk, non-performing credit). The degree of SES, affected by financial measures, shows a negative relationship with size, highlighting that the increase in social efficiency is largely due to the relationship between customers and banks, credit policy, creditworthiness assessment and trust among bank members. Positive relationships are instead shown by profitability as a key factor in future sustainability and social efficiency, productivity as better customer satisfaction, and the degree of coverage of the credit risk as greater flexibility in choices and strategies in pursuing specific member interests.