The Effects of Organizational Structure on Asset Management
We study how the strategies and performance of an asset management company are affected by its internal organizational structure. A more hierarchical and complex structure on the one hand reduces the incentives to collect soft information and reduces performance. On the other hand, it limits managerial discretion and reduces moral hazard, curbing the incentive of the managers to engage in excessive risk taking. We focus on mutual funds and insurance companies. We have available information on the organizational structure of all the US mutual funds and insurance companies investing in US corporate bonds. We construct two measures of organizational structure: hierarchy and complexity. We show that more hierarchical structures invest less in firms located close to them and deliver lower performance. An additional layer in the hierarchical structure reduces the average performance by 19 basis points per month, while one additional competence reduces the average performance by 3 basis points per month. These effects are particularly strong in the case of insurance-run funds. At the same time, hierarchy and complexity lower the incentives to engage in end-of-the-year risk taking if lagging behind the peers. Moreover, more hierarchical and complex structure tend to herd more and to hold less concentrated portfolios. These findings are consistent with Steins (2002) theory of organization.
mutual funds organization structure performance herding proximity investment tournaments
Massimo Massa Lei Zhang
国际会议
大连
英文
1-45
2008-07-02（万方平台首次上网日期，不代表论文的发表时间）