Identity, Diversity, and Team Performance: Evidence from U.S. Mutual Funds
57 Pages Posted: 8 Jan 2020 Last revised: 26 Jan 2021
Date Written: December 17, 2019
We examine team diversity and performance in the asset management industry. Focusing on political ideology as the source of both potential complementarities and conflict in a group, we find diverse teams perform better than homogeneous teams. The mechanism involves both improved decision-making due to more diverse perspectives and increased monitoring by heterogeneous team members. The benefits of ideological diversity are undone when political polarization is higher, consistent with increased intra-team conflict. In examining why less diverse teams are prevalent in asset management, we find entrenched managers prefer homogeneous teams, and the local labor market supply of ideologically diverse managers is constrained.
Keywords: Mutual fund, Teams, Dispersion in Beliefs, Identity, Diversity, Labor incentives, Political Ideology, Campaign Contributions, Polarization, PACs
JEL Classification: G11, G23, J33, J44, L22, L25, L84, M12, M52
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