Returns to Scale from Labor Specialization: Evidence from Global Asset Management

Abstract

We use mergers in the global asset management industry to study the returns to scale from labor specialization. Mergers are followed by an increase in managerial turnover that assigns fund managers to more specialized tasks. This leads to increased specialization and product differentiation, creating an incremental $60 million of value added per merger per year on average. Such value creation is concentrated in “mergers of equals” that lead to the largest increases in firm size. Our results provide direct and quantifiable evidence on the value of the firm’s role in assigning employees to tasks.

Keywords: Economies of Scale, Labor Specialization, Human Capital Productivity, Mergers & Acquisitions, Asset Management

JEL Classification: D20, D24, G23, G34, J24