2 Managerial Incentives in Concurrently Managed Mutual Funds

This study examines the influence of managerial incentives, in the form of managerial ownership, management fees, and management revenue, on mutual fund performance and risk taking when unobservable managerial ability is being controlled for through a data set of concurrently managed mutual funds. Using this hand-collected data set, which targets mutual funds whose managers transit from managing one fund to multiple funds (i.e., concurrent management), we find that managerial ownership serves as a timely and effective managerial incentive in that it leads to better fund performance when compared across funds under concurrent management. In addition, we find that managerial ownership incentive and contractual fee incentive are different in explaining risk taking behavior among funds they managed. Fund managers appear to take more risk when they face higher contractual incentive fees. Notwithstanding such evidence, investors do not significantly utilize managerial ownership information which is publicly available for their investment in mutual funds under concurrent management