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.