Identifying the effect of managerial control on firm performance

Using a unique sample, we attempt to identify the consequence of the separation between inside ownership and control for firm performance. We exploit the fact that banking institutions may hold their own shares in trust to construct a clean measure of the wedge between inside voting control and cash flow rights. These shares provide managers with no monetary incentives, since their dividends accrue to trust beneficiaries. However, managers may have the authority to vote these shares. Contrary to the belief that managerial control is purely detrimental, we find that it has positive effects on performance over at least some range.