Mandated Performance Disclosure and Managerial Risk-Taking

50 Pages Posted: 16 Jul 2021 Last revised: 1 Dec 2022

See all articles by John C. Heater

John C. Heater

Duke University - Fuqua School of Business

Date Written: November 29, 2022


I document that mandated performance disclosure increased managerial risk-taking, resulting in significant unintended consequences and agency conflicts. After the SEC required that all mutual funds disclose a self-selected primary benchmark, I find that most fund managers chose a benchmark that was not the best fit index. Furthermore, I provide evidence that actively managed funds increased risk-taking relative to their disclosed benchmarks in response to the disclosure change. I also find that the mandated disclosure requirement exacerbated the well-documented tendency of managers who underperform during the first half of the year to increase the risks they take in the second half of the year.

Keywords: Mutual Funds, Disclosure Regulation, Real Effects, Externalities, Financial Reporting, Managerial Incentives

JEL Classification: G14, G18, G30, G38, K20, M41

Suggested Citation

Heater, John C., Mandated Performance Disclosure and Managerial Risk-Taking (November 29, 2022). Available at SSRN: or

John C. Heater (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-1085 (Phone)


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