Holding Onto Your Horses: Conﬂicts of Interest in Asset Management
Posted: 3 Jun 2010
Date Written: June 3, 2010
Racehorse trainers operate unregulated asset management businesses in which the assets owned by outside clients compete with those owned by trainers for the latter’s time, care and attention. However, market mechanisms appear to deal effectively with the resulting agency problem in situations where it matters most. In a sample of 8000 racehorses and their associated stables, we ﬁnd that client-owned horses do indeed perform worse than their trainer-owned counterparts in small stables that have relatively few outside clients, but that the reverse is true in large stables where client-owners provide much of the trainer’s income – agents with more to lose apparently behave better. Moreover, they appear to have good reasons for doing so: client-owned horses that under-perform are more likely to be transferred to another stable, thereby causing a loss of income for the original trainer.
Keywords: agency, conflicts of interest, horse racing, asset management
JEL Classification: J32, M52, D82, L14, L83
Suggested Citation: Suggested Citation