The ownership structures of firms are endogenous. This makes it difficult to produce
w direct evidence on the Berle and Means Berle, A.A., Means, G.C., 1932. The Modern
x Corporation and Private Property, New York. hypothesis that corporate governance
becomes less efficient as the degree of separation of ownership and control increases.
We address this issue by studying Austrian cooperative banking, an organizational
form in which the ownership structure is exogenous. We show that firm performance
declines as the number of cooperative members increases, corresponding to a greater
separation of ownership and control. We also provide direct evidence on another theory
that is difficult to
test, namely, the efficiency wage hypothesis. We show that the decline in firm performance
as the number of shareholders increases is due to an increase in efficiency wages.