Identifying the Effect of Managerial Control on Firm Performance
Renee B. Adams
University of New South Wales; Financial Research Network (FIRN); European Corporate Governance Institute (ECGI)
João A. C. Santos
Federal Reserve Bank of New York
July 16, 2004
EFA 2002 Berlin Meetings Presented Paper
We attempt to identify the consequence of the separation of inside ownership from control for firm performance. Exploiting the fact that banking institutions may hold their own shares in trust, we construct a clean measure of the wedge between inside voting control and cash flow rights. These shares provide managers with no monetary incentives, since the cash flows accrue to trust beneficiaries. However, managers may have the authority to vote these shares. Using a unique sample of data, we identify a pure effect of managerial voting control on firm performance. Contrary to the belief that managerial control is purely detrimental, we find that it has positive effects.
Number of Pages in PDF File: 45
Keywords: Managerial control, Voting rights, Performance measurement, Trust investments
JEL Classification: G32, G30, G21
Date posted: March 9, 2002
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