Holding Onto Your Horses: Conflicts of Interest in Asset Management

Posted: 3 Jun 2010

See all articles by Glenn Boyle

Glenn Boyle

University of Canterbury - Economics and Finance; Sapere Research Group

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance

Luke Gorton

Macquarie Bank Ltd.

Date Written: June 3, 2010

Abstract

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

Boyle, Glenn and Guthrie, Graeme and Gorton, Luke, Holding Onto Your Horses: Conflicts of Interest in Asset Management (June 3, 2010). Journal of Law and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1620126

Glenn Boyle (Contact Author)

University of Canterbury - Economics and Finance ( email )

Private Bag 4800
Christchurch
New Zealand

Sapere Research Group ( email )

Level 9, Pencarrow House
1 Willeston St
Wellington, 6140
New Zealand

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6140
New Zealand
64 4 463 5763 (Phone)

Luke Gorton

Macquarie Bank Ltd. ( email )

Sydney 2000, NSW
Australia

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