Groomed for Selling and Sold for Grooming: Strategic Behavior Surrounding Sales of Mutual-Fund Management Companies

65 Pages Posted: 30 Jul 2018

See all articles by Eduard Inozemtsev

Eduard Inozemtsev

Ohio State University (OSU), Fisher College of Business; Gaidar Institute for Economic Policy

Zoran Ivkovich

Michigan State University, Department of Finance

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Date Written: July 28, 2018

Abstract

Performance patterns involving funds managed by management companies both to be sold and recently sold suggest their careful strategic management. Intertemporal patterns in cross-subsidization in the year leading to the sale deteriorate the performance of funds from the top of relative rankings (“the stars”). The funds that a year before the sale have been at the bottom of relative rankings (“the dogs”) appear to have been at the receiving end of the cross-subsidization. Endogeneity concerns are alleviated by the finding that this pattern is not present in the context of incidental asset management company sales, and is amplified in the context of deliberate asset management company sales. Variation in the extent of active management over time is not at play because it does not vary with the critical variable indicative of cross-subsidization. Allocation of strong stock picks across mutual funds managed by the same management company follow the predicted patterns of cross-subsidization surrounding mutual-fund management company sales. Patterns of cross-subsidization reverse after the sale had been completed. Specifically, stars, having been providing cross-subsidization shortly before the sale, are on the receiving end of cross-subsidization in the period following the sale. Finally, the cross-subsidization results are pronounced only for the star funds highly likely to be delisted shortly after the completion of the management company sale.

Keywords: Mutual fund families, mutual fund management companies, strategic behavior

JEL Classification: G2, G20, G23

Suggested Citation

Inozemtsev, Eduard and Ivkovich, Zoran and Simonov, Andrei, Groomed for Selling and Sold for Grooming: Strategic Behavior Surrounding Sales of Mutual-Fund Management Companies (July 28, 2018). 29th Annual Conference on Financial Economics & Accounting 2018. Available at SSRN: https://ssrn.com/abstract=3221896 or http://dx.doi.org/10.2139/ssrn.3221896

Eduard Inozemtsev

Ohio State University (OSU), Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH
United States

Gaidar Institute for Economic Policy ( email )

3-5 Gazetny Lane
Moscow, 125009
Russia

Zoran Ivkovich

Michigan State University, Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Andrei Simonov (Contact Author)

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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