Owner vs. Manager Control Effects on Bank Performance

An empirical analysis is conducted of the relative performance of owner-controlled and manager-controlled banks. Ownership data were compiled for the parent companies of 1,406 lead banks in US bank holding companies.In general, the results show that owner-controlled banks tend to have higher profit rates than manager-controlled banks. It was found that the choice sample has an important effect on the results; tests on the largest 200 banks showed no relationship between profit rate and ownership. This circumstance suggests an explanation for the failure of previous studies to find a statistically significant relationship between profit rates and degree of owner control. Tests for nonlinearity indicate that the effects of owner control are not evident until a relatively high level of ownership control exists.