Hostname: page-component-7bb8b95d7b-w7rtg Total loading time: 0 Render date: 2024-09-17T21:24:10.272Z Has data issue: false hasContentIssue false
  • English
  • Français

Individual Commitment and Team Performance: Evidence from Mutual Fund Managers

Published online by Cambridge University Press:  30 April 2019

Jiang Luo  and
Zheng Qiao
Jiang Luo
Affiliation:
Luo, luojiang@ntu.edu.sg, Nanyang Business School, Nanyang Technological University
Zheng Qiao*
Affiliation:
Qiao, zqiao@xmu.edu.cn, School of Management, Xiamen University
*
Qiao (corresponding author), zqiao@xmu.edu.cn
Get access Rights & Permissions [Opens in a new window]

Abstract

The psychology literature suggests that individual commitment has a positive effect on team performance by mitigating the free-rider problem. With its detailed management-team information, the mutual fund industry provides a unique opportunity to study how individual managerial commitment is related to performance. Committed fund managers are defined as those who work only for one fund. With few incentives to acquire private information, teams with no committed members underperform those with committed members. These findings remain robust after we incorporate various controls. We also explore why non-committed teams have been used increasingly often despite their poor performance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 6 , September 2020 , pp. 2073 - 2098
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank an anonymous referee, Vikas Agarwal, Antonio Bernardo, Hendrik Bessembinder (the editor), Hongbin Cai, Zhanhui Chen, Stephen Dimmock, Chuan Yang Hwang, Jun-Koo Kang, and Vikram Nanda for valuable comments. Luo acknowledges the financial support from the Singapore Ministry of Education (Tier 1 Grant: RG69/13). Qiao acknowledges the financial support from the National Natural Science Foundation of China (71802171, 71790601). All errors are ours.

References

Agnew, J.; Balduzzi, P.; and Sunden, A.. “Portfolio Choice and Trading in a Large 401(k) Plan.” American Economic Review, 93 (2003), 193–215.CrossRefGoogle Scholar
Alchian, A. A., and Demsetz, H.. “Production, Information Costs, and Economic Organization.” American Economic Review, 62 (1972), 777–795.Google Scholar
Allen, N. J., and Meyer, J. P.. “The Measurement and Antecedents of Affective, Continuance and Normative Commitment to the Organization.” Journal of Occupational Psychology, 63 (1990), 1–18.CrossRefGoogle Scholar
Amihud, Y., and Goyenko, R.. “Mutual Fund’s R 2 as Predictor of Performance.” Review of Financial Studies, 26 (2013), 667–694.CrossRefGoogle Scholar
Bar, M.; Kempf, A.; and Ruenzi, S.. “Is a Team Different from the Sum of Its Parts? Evidence from Mutual Fund Managers.” Review of Finance, 15 (2011), 359–396.CrossRefGoogle Scholar
Barth, M. E.; Kasznik, R.; and McNichols, M. F.. “Analyst Coverage and Intangible Assets.” Journal of Accounting Research, 39 (2001), 1–34.CrossRefGoogle Scholar
Benartzi, S., and Thaler, R.. “Naive Diversification Strategies in Defined Contribution Savings Plans.” American Economic Review, 91 (2001), 79–98.CrossRefGoogle Scholar
Bliss, R. T.; Potter, M. E.; and Schwarz, C.. “Performance Characteristics of Individually-Managed versus Team-Managed Mutual Funds.” Journal of Portfolio Management, 34 (2008), 110–119.CrossRefGoogle Scholar
Carhart, M. M.“On Persistence in Mutual Fund Performance.” Journal of Finance, 52 (1997), 57–82.CrossRefGoogle Scholar
Carroll, G. D.; Choi, J. J.; Laibson, D.; Madrian, B. C.; and Metrick, A.. “Optimal Defaults and Active Decisions.” Quarterly Journal of Economics, 124 (2009), 1639–1674.CrossRefGoogle ScholarPubMed
Chen, J.; Hong, H.; Huang, M.; and Kubik, J.. “Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization.” American Economic Review, 90 (2004), 1276–1302.CrossRefGoogle Scholar
Chen, N., and Zhang, F.. “Risk and Return of Value Stocks.” Journal of Business, 71 (1998), 501–535.CrossRefGoogle Scholar
Chevalier, J., and Ellison, G.. “Career Concerns of Mutual Fund Managers.” Quarterly Journal of Economics, 114 (1999), 389–432.CrossRefGoogle Scholar
Core, J. E.; Holthausen, R. W.; and Larcker, D. F.. “Corporate Governance, Chief Executive Officer Compensation, and Firm Performance.” Journal of Financial Economics, 51 (1999), 371–406.CrossRefGoogle Scholar
Coval, J. D., and Moskowitz, T.. “Home Bias at Home: Local Equity Preference in Domestic Portfolios.” Journal of Finance, 54 (1999), 2045–2073.CrossRefGoogle Scholar
Coval, J. D., and Moskowitz, T.. “The Geography of Investment: Informed Trading and Asset Prices.” Journal of Political Economy, 109 (2001), 811–841.CrossRefGoogle Scholar
Dass, N.; Nanda, V.; and Wang, Q.. “Allocation of Decision Rights and the Investment Strategy of Mutual Funds.” Journal of Financial Economics, 110 (2013), 254–277.CrossRefGoogle Scholar
Duflo, E., and Saez, E.. “The Role of Information and Social Interactions in Retirement Plan Decisions: Evidence from a Randomized Experiment.” Quarterly Journal of Economics, 118 (2003), 815–842.CrossRefGoogle Scholar
Edelen, R. M.“Investor Flows and the Assessed Performance of Open-end Mutual Funds.” Journal of Financial Economics, 53 (1999), 439–466.CrossRefGoogle Scholar
Eesley, C. E.; Hsu, D. H.; and Roberts, E. B.. “The Contingent Effects of Top Management Teams on Venture Performance: Aligning Founding Team Composition with Innovation Strategy and Commercialization Environment.” Strategic Management Journal, 35 (2014), 1798–1817.CrossRefGoogle Scholar
Evans, R. B.“Mutual Fund Incubation.” Journal of Finance, 65 (2010), 1581–1611.CrossRefGoogle Scholar
Fama, E. F.“Agency Problems and the Theory of the Firm.” Journal of Political Economy, 88 (1980), 288–307.CrossRefGoogle Scholar
Fama, E. F., and French, K. R.. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 3–56.CrossRefGoogle Scholar
Fama, E. F., and French, K. R.. “Size and Book-to-Market Factors in Earnings and Returns.” Journal of Finance, 50 (1995), 131–155.CrossRefGoogle Scholar
Fama, E. F., and Jensen, M. C.. “The Separation of Ownership and Control.” Journal of Law and Economics, 26 (1983), 301–325.CrossRefGoogle Scholar
Fang, J.; Kempf, A.; and Trapp, M.. “Fund Manager Allocation.” Journal of Financial Economics, 111 (2014), 661–674.CrossRefGoogle Scholar
Ferson, W., and Schadt, R.. “Measuring Fund Strategy and Performance in Changing Economic Conditions.” Journal of Finance, 51 (1996), 425–462.CrossRefGoogle Scholar
Ferris, S. P.; Jagannathan, M.; and Pritchard, A. C.. “Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments.” Journal of Finance, 58 (2003), 1087–1111.CrossRefGoogle Scholar
Fich, E. M., and Shivdasani, A.. “Are Busy Boards Effective Monitors?” Journal of Finance, 61 (2006), 689–724.CrossRefGoogle Scholar
Field, L.; Lowry, M.; and Mkrtchyan, A.. “Are Busy Boards Detrimental?” Journal of Financial Economics, 109 (2013), 63–82.CrossRefGoogle Scholar
Gervais, S.; Lynch, A. W.; and Musto, D. K.. “Fund Families as Delegated Monitors of Money Managers.” Review of Financial Studies, 18 (2005), 1139–1169.CrossRefGoogle Scholar
Griffin, J. M., and Lemmon, M. L.. “Book-to-Market Equity, Distress Risk, and Stock Returns.” Journal of Finance, 57 (2002), 2317–2336.CrossRefGoogle Scholar
Gruber, M. J.“Another Puzzle: The Growth in Actively Managed Mutual Funds.” Journal of Finance, 51 (1996), 783–810.CrossRefGoogle Scholar
Hamilton, B. H.; Nickerson, J. A.; and Owan, H.. “Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation.” Journal of Political Economy, 111 (2003), 465–497.CrossRefGoogle Scholar
Holmström, B. “Moral Hazard in Teams.” Bell Journal of Economics, 13(1982), 324–340.CrossRefGoogle Scholar
Huberman, G., and Jiang, W.. “Offering versus Choice in 401(k) Plans: Equity Exposure and Number of Funds.” Journal of Finance, 61 (2006), 763–801.CrossRefGoogle Scholar
Jayaraman, N.; Khorana, A.; and Nelling, E.. “An Analysis of the Determinants and Shareholder Wealth Effects of Mutual Fund Mergers.” Journal of Finance, 57 (2002), 1521–1551.CrossRefGoogle Scholar
Jensen, M. C.“The Performance of Mutual Funds in the Period 1945–1964.” Journal of Finance, 23 (1967), 389–416.CrossRefGoogle Scholar
Jiang, H., and Zheng, L.. “Active Fundamental Performance.” Review of Financial Studies, 31 (2018), 4688–4719.CrossRefGoogle Scholar
Kacperczyk, M.; Sialm, C.; and Zheng, L.. “On the Industry Concentration of Actively Managed Equity Mutual Funds.” Journal of Finance, 60 (2005), 1983–2011.CrossRefGoogle Scholar
Kacperczyk, M.; Sialm, C.; and Zheng, L.. “Unobserved Actions of Mutual Funds.” Review of Financial Studies, 21 (2008), 2379–2416.CrossRefGoogle Scholar
Kandel, E., and Lazear, E. P.. “Peer Pressure and Partnerships.” Journal of Political Economy, 100 (1992), 801–817.CrossRefGoogle Scholar
Kanter, R. M.“Commitment and Social Organization: A Study of Commitment Mechanisms in Utopian Communities.” American Sociological Review, 33 (1968), 499–517.CrossRefGoogle Scholar
Keswani, A., and Stolin, D.. “Which Money Is Smart? Mutual Fund Buys and Sells of Individual and Institutional Investors.” Journal of Finance, 63 (2008), 85–118.CrossRefGoogle Scholar
Lazear, E. P.Personnel Economics for Managers. New York, NY: Wiley (1998).Google Scholar
Lou, D.“A Flow-Based Explanation for Return Predictability.” Review of Financial Studies, 25 (2012), 3457–3489.CrossRefGoogle Scholar
Ma, L.; Tang, Y.; and Gomez, J.-P.. “Portfolio Manager Compensation in the U.S. Mutual Fund Industry.” Journal of Finance, 74 (2019), 587–638.CrossRefGoogle Scholar
Madrian, B., and Shea, D. F.. “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior.” Quarterly Journal of Economics, 116 (2001), 1149–1187.CrossRefGoogle Scholar
Meyer, J. P., and Allen, N. J.. “The Measurement and Antecedents of Affective, Continuance and Normative Commitment to the Organization.” Journal of Occupational Psychology, 63 (1990), 1–18.Google Scholar
Meyer, J. P.; Paunonen, S. V.; Gellatly, I. R.; Goffin, R. D.; and Jackson, D. N.. “Organizational Commitment and Job Performance: It’s the Nature of the Commitment That Counts.” Journal of Applied Psychology, 74 (1989), 152–156.CrossRefGoogle Scholar
Mowday, R. T.; Steers, R. M.; and Porter, L. W.. “The Measurement of Organizational Commitment.” Journal of Vocational Behavior, 14 (1979), 224–247.CrossRefGoogle Scholar
Nadolska, A., and Barkema, H. G.. “Good Learners: How Top Management Teams Affect the Success and Frequency of Acquisitions.” Strategic Management Journal, 35 (2014), 1483–1507.CrossRefGoogle Scholar
Pástor, L., and Stambaugh, R. F.. “Liquidity Risk and Expected Stock Returns.” Journal of Political Economy, 111 (2003), 642–685.CrossRefGoogle Scholar
Pástor, L.; Stambaugh, R. F.; and Taylor, L. A.. “Do Funds Make More When They Trade More?” Journal of Finance, 72 (2017), 1483–1528.CrossRefGoogle Scholar
Patel, S., and Sarkissian, S.. “To Group or Not to Group? Evidence from Mutual Fund Databases.” Journal of Financial and Quantitative Analysis, 52 (2017), 1989–2021.CrossRefGoogle ScholarPubMed
Prather, L. J., and Middleton, K. L.. “Are N + 1 Heads Better than One? The Case of Mutual Fund Managers.” Journal of Economic Behavior and Organization, 47 (2002), 103–120.CrossRefGoogle Scholar
Qiu, J.“Termination Risk, Multiple Managers and Mutual Fund Tournaments.” Review of Finance, 7 (2003), 161–190.CrossRefGoogle Scholar
Schultz, P.“Rational Cross-Sectional Differences in Market Efficiency: Evidence from Mutual Fund Returns.” Journal of Financial and Quantitative Analysis, 45 (2010), 847–881.CrossRefGoogle Scholar
Sialm, C.; Starks, L. T.; and Zhang, H.. “Defined Contribution Pension Plans: Sticky or Discerning Money?” Journal of Finance, 70 (2015), 805–838.CrossRefGoogle Scholar
Sirri, E. R., and Tufano, P.. “Costly Search and Mutual Fund Flows.” Journal of Finance, 53 (1998), 1589–1622.CrossRefGoogle Scholar
Stein, J. C.“Information Production and Capital Allocation: Decentralized versus Hierarchical Firms.” Journal of Finance, 57 (2002), 1891–1921.CrossRefGoogle Scholar
Zheng, L.“Is Money Smart? A Study of Mutual Fund Investors’ Fund Selection Ability.” Journal of Finance, 54 (1999), 901–933.CrossRefGoogle Scholar
Supplementary material: File

Luo and Qiao supplementary material

Luo and Qiao supplementary material

Download Luo and Qiao supplementary material(File)
File 176.2 KB