Separation of Ownership and Control and Profit Rates, the Evidence from Banking: Comment

This paper presents the results of a study which sought to determine whether the status of large member banks as owner-controlled or management-controlled has borne a significant relation to bank profit rates during recent years. The impetus for the study was provided by the view, encountered frequently in the literature, that management-controlled firms may place less emphasis on profit rate than owner-controlled firms, sacrificing it for performance goals regarded as more consistent with management interest. W. Baumo.1 1, p. 4 and pp. 101–104, for example, has argued that management-controlled firms may sacrifice profit rate in order to achieve higher growth rate and reduced risk acceptance. R. Monsen and A. Downs 11 suggest that such firms may sacrifice both profit rate and growth rate for reduced risk acceptance. K. Cohen and S. Reid, in their study of bank merger activity during 1952–1961 5, argue that bank managers, as compared to bank owners, place more emphasis on growth rate and less emphasis on profit-associated variables. Other possibilities present themselves. Management-controlled firms may sacrifice profit rate directly for management salaries, bonuses, and fringe benefits, including benefits associated with management prestige. The management-controlled firms may simply pursue efficiency less vigorously.