Owner vs. Manager Control Effects on Bank Performance

A basic notion derived from the observation of a high and increasing degree of manager control in large American corporations (see Berle and Means (1932)) is that managers may have objectives different from the assumed profit maximization motive of owners of firms.' The issue remains unresolved-theoretical work has been of an ad hoc nature (e.g., Monsen and Downs (1965)) and the empirical evidence is mixed (e.g., Kamerschen (1968); Monsen, Chiu, and Cooley (1968); and Larner (1970)). This study conducts an empirical analysis of the relative performance of owner controlled and manager controlled banks. The study is unique in three respects. First, it focuses upon cost and growth as well as profit performance. Second, and more important, it is not confined to the largest 200 or 500 firms as has been the case with most previous studies.2 The sample in this study includes the lead bank of most of the 1,735 bank holding companies in the United States in 1975.3 Third, we test for nonlinearity to determine empirically at what percentage (if any) of ownership performance differences become apparent.