Portfolio Pumping and Managerial Structure
44 Pages Posted: 19 Sep 2012 Last revised: 16 May 2017
Date Written: May 2, 2017
This paper examines the link between managerial structure and deception likelihood using U.S. equity mutual fund data. It shows that portfolio pumping – an illegal trading activity – is more profound among single-managed funds, especially their worst performers, than team-managed funds. The relation between the extent of portfolio pumping and team size is negative. These results are not explained by differences in fund governance quality, manager career concerns, or other characteristics. They reflect the less convex flow-performance relation in team-managed funds, suggesting fewer reasons for them to inflate returns. Therefore, team-management is a desirable organizational form, as it weakens incentives to deceive.
Keywords: Cheating; Fund performance; Fund flows; Securities regulation
JEL Classification: D70, G23, K22
Suggested Citation: Suggested Citation