Outsourcing Mutual Fund Management: Firm Boundaries, Incentives and Performance
This paper investigates the effects of managerial outsourcing on the incentives and performance of mutual funds. We first document that many families farm out the management of a sizeable fraction of their funds to unaffiliated advisory firms. We find that funds managed externally significantly under-perform those ran internally. We establish the causality of this relationship by using as an instrument for outsourcing the interaction of the number of funds a family offers (controlling for family size) at the time a fund is started with the proximity of the family’s location from financial centers. We then hypothesize that contractual externalities due to firm boundaries make it more difficult to extract performance from an outsourced relationship. We verify two key auxiliary predictions of this hypothesis: compared to counterparts ran internally, (1) an outsourced fund faces higher-powered incentives in that the likelihood that it experiences a closure or managerial termination is more sensitive to poor past performance and absolute deviation of fund risk-taking from the norm; (2) its risk-taking behavior also deviates less from the norm.
Joseph Chen Harrison Hong Jeffrey D. Kubik
University of Southern California Princeton University Syracuse University
国际会议
成都
英文
1-51
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）