Knowledge Spillovers in the Mutual Fund Industry Through Labor Mobility

Abstract

Firms’ competitive advantages are unsustainable when competitors hire their employees away to study and recreate those advantages. We document inter-firm knowledge spillovers through labor mobility in the mutual fund industry, which result in performance improvement at the recipient family. This effect intensifies when switching managers had better access to the organization processes at the originating family and frictions hampering knowledge absorption at the recipient family are weaker. Performance deterioration at the originating family, which intensifies when more money chases the newly-transferred knowledge, suggests erosion of its competitive advantage and wealth transfers across investors in the respective families.

Keywords: Organization Capital, Knowledge Spillovers, Mutual Funds, Learning-by-Hiring

JEL Classification: D86, G23 K12, K31, M5