Abstract

http://ssrn.com/abstract=891573
 
 

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Outsourcing Mutual Fund Management: Firm Boundaries, Incentives and Performance


Joseph Chen


University of California, Davis - Graduate School of Management

Harrison G. Hong


Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Wenxi Jiang


Yale University - School of Management

Jeffrey D. Kubik


Syracuse University - Department of Economics

August 29, 2012


Abstract:     
We investigate the effects of managerial outsourcing on the performance and incentives of mutual funds. Fund families outsource the management of a large fraction of their funds to advisory firms. These funds under-perform those ran internally by about 50 basis points per year. After instrumenting for a fund's outsourcing status, the estimate of under-performance is three times larger. We hypothesize that contractual externalities due to firm boundaries make it difficult to extract performance from an outsourced relationship. Consistent with this view, an outsourced fund faces higher-powered incentives; they are more likely to be closed after poor performance and excessive risk-taking.

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Date posted: March 19, 2006 ; Last revised: August 30, 2012

Suggested Citation

Chen, Joseph and Hong, Harrison G. and Jiang, Wenxi and Kubik, Jeffrey D., Outsourcing Mutual Fund Management: Firm Boundaries, Incentives and Performance (August 29, 2012). Available at SSRN: http://ssrn.com/abstract=891573 or http://dx.doi.org/10.2139/ssrn.891573

Contact Information

Joseph S. Chen
University of California, Davis - Graduate School of Management ( email )
One Shields Avenue
Davis, CA 95616
United States
(530) 752-7155 (Phone)
(530) 752-2924 (Fax)
Harrison G. Hong (Contact Author)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Wenxi Jiang
Yale University - School of Management ( email )
New Haven, CT 06520
United States
Jeffrey D. Kubik
Syracuse University - Department of Economics ( email )
426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-9063 (Phone)
315-443-1081 (Fax)
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