Identifying the Effect of Managerial Control on Firm Performance
45 Pages Posted: 9 Mar 2002
Date Written: July 16, 2004
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.
Keywords: Managerial control, Voting rights, Performance measurement, Trust investments
JEL Classification: G32, G30, G21
Suggested Citation: Suggested Citation