The Leadership Effect: Evidence from the Fund Industry

44 Pages Posted: 20 Sep 2022 Last revised: 23 Sep 2022

See all articles by Saurin Patel

Saurin Patel

Ivey Business School, Western University

Sergei Sarkissian

McGill University; University of Edinburgh

Yu Xia

University of Manitoba - Asper School of Business

Date Written: August 15, 2021

Abstract

The literature debates whether vertical (autocratic) or horizontal (democratic) policy making is better for institutional and country development. We approach this issue by examining how decision-making hierarchy in team-managed U.S. equity mutual funds affects their performance and risk taking. Employing a unique hand-collected dataset, we find that vertically-managed funds with lead managers earn 75 bps per year lower Fama-French five-factor alpha than their horizontally-managed counterparts. Moreover, vertically-managed funds hold less concentrated portfolios and have lower residual risk, thus showing signs of inferior security selection ability. Our findings support a horizontal decision-making structure in organizations functioning in an uncertain expectation environment.

Keywords: Fund alpha, Portfolio concentration, Risk-taking behaviour, Team management

JEL Classification: D70, G23, P00

Suggested Citation

Patel, Saurin and Sarkissian, Sergei and Xia, Yu, The Leadership Effect: Evidence from the Fund Industry (August 15, 2021). Available at SSRN: https://ssrn.com/abstract=4212499 or http://dx.doi.org/10.2139/ssrn.4212499

Saurin Patel

Ivey Business School, Western University ( email )

1255 Western Road
Room 2303
London, Ontario N6G 0N1
Canada
519-661-4195 (Phone)

Sergei Sarkissian

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
514-398-4876 (Phone)
514-398-3876 (Fax)

HOME PAGE: http://sergei-sarkissian.com

University of Edinburgh

29 Buccleuch Pl.
Edinburgh, Scotland EH8 9JS
United Kingdom

Yu Xia (Contact Author)

University of Manitoba - Asper School of Business ( email )

181 Freedman Crescent
Rm 664
Winnipeg, Manitoba R3T 5V4 R3T 5V4
Canada
5146215342 (Phone)

HOME PAGE: http://www.yuxia.info

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