THE PROFIT PERFORMANCE EFFECTS OF THE SEPARATION OF OWNERSHIP FROM CONTROL IN LARGE U.S. INDUSTRIAL CORPORATIONS

AMONG FIRMS WITH A HIGH DEGREE OF MONOPOLY POWER, STRONG AND WEAK OWNER-CONTROLLED FIRMS REPORTED SIGNIFICANTLY GREATER PROFIT RATES THAN MANAGEMENT-CONTROLLED FIRMS. THE SEPARATION OF OWNERSHIP FROM CONTROL DID NOT SIGNIFICANTLY AFFECT PROFIT RATES FOR FIRMS WITH LESS MONOPOLY POWER, NOR DID ALLOWANCE FOR AN INTERACTION EFFECT WITH THE SIZE CLASSES YIELD STATISTICALLY SIGNIFICANT RESULTS. FOR THE VARIABILITY OF RATES-OF-RETURN OVER TIME, AMONG THE CLASS OF SMALLEST FIRMS, MANAGEMENT-CONTROLLED FIRMS HAD PROFIT RATES SIGNIFICANTLY MORE VARIABLE THAT OWNER-CONTROLLED FIRMS. FOR LARGER FIRMS THERE WAS A SIMILAR BUT INSIGNIFICANT DIFFERENCE IN PROFIT RATE VARIABILITIES BY TYPE OF CONTROL. ONE OF THE MOST BASIC INFERENCES TO BE DRAWN FROM THESE RESULTS IS THAT ONLY IF THE MANAGERS OF LARGE CORPORATIONS ARE FREE FROM COMPETITIVE CONSTRAINTS IN THE PRODUCT MARKET AND FREE FROM STOCK-HOLDER CONTROL WILL THEY BE ABLE TO PURSUE GOALS MORE CONSISTENT WITH THEIR OWN UTILITY FUNCTIONS AND LESS CONSISTENT WITH PROFIT MAXIMIZATION.