Monopoly Power, Ownership Control, and Corporate Performance

The performance criterion receiving the closest attention in the literature on "managerialism" is the rate of return on stockholders' equity. It is argued here that of more immediate concern to the shareholder is the rate of return on his investment in the stock of the firm. The determinants of ex post stock return are examined for evidence of managerial discretion. When the means by which managerial discretion may be manifested is correctly specified, the results show that the decisions of executives of management-controlled firms have conflicted with the interests of these firms' shareholders. Shareholders of owner-controlled firms have been provided with a significantly higher rate of return than shareholders of management-controlled firms.