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
Journal of Accounting and Economics 41, 55-85, 2006.
Using a unique sample, we attempt to identify the consequence of the separation between inside ownership and control for firm performance. We exploit the fact that banking institutions may hold their own shares in trust to construct a clean measure of the wedge between inside voting control and cash flow rights. These shares provide managers with no monetary incentives, since their dividends accrue to trust beneficiaries.
However, managers may have the authority to vote these shares. Contrary to the belief that managerial control is purely detrimental, we find that it has positive effects on performance over at least some range.
Number of Pages in PDF File: 48
Keywords: Managerial control, Voting rights, Performance measurement, Trust investments
JEL Classification: G32, G30, G21Accepted Paper Series
Date posted: November 8, 2005
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