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

Abstract

We study economies of scale in asset management firms that stem from the improved ability to assign fund managers to specialized tasks in larger firms. Exploiting discrete changes in firm size after asset management mergers, we find that managers are assigned more specialized tasks in larger firms. This leads to improved fund performance and incremental value creation of $54 million of value added per deal per year on average. The effects are concentrated in firms that experience the largest increase in size. Our results provide direct evidence on the role of firms in the assignment of tasks to fund managers.

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

JEL Classification: G23, J24, G34