Effect of Control Type on the Performance of the Firm in the U.K.

Abstract

MODERN managerial theories of the firm stem from the idea, first popularized by Berle and Means [2], that the twentieth century has witnessed a separation of corporate ownership from corporate control. In the neoclassical theory of the firm the utility functions of owner and manager are synonymous because the owner (risk bearer) and the manager (risk taker) are the same person. But in managerial theories the functions of risk bearing and risk taking are quite separate and the possibility emerges that there may be conflict between the aims of owners and the aims of managers. The extent to which this conflict reveals itself depends upon the autonomy of management, that is to say, the extent to which ownership and control are separated. Consequently the performance of firms which are owner controlled may differ from those which are controlled by management. But, while managerial theories agree in postulating a utility function for managers which is separate from that of owners there is considerable disagreement concerning the arguments which it should contain, And this in turn means that there is disagreement concerning the ways in which the performances of firms are affected by control type. The present study is an empirical investigation into the extent to which control type affects company performance. No single managerial theory is adhered to; rather, elements of different theories are combined to provide a range of performance characteristics which will be used to differentiate between groups of firms classified by control type. The plan of the paper is as follows: Section I discusses the data and the sample of firms while Section 2 discusses the variables used and their measurement; Section 3 deals with the method used and Section 4 discusses the results obtained.