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Better Kept in the Dark? Portfolio Disclosure and Agency Problems in Mutual Funds

Published online by Cambridge University Press:  19 January 2021

Teodor Dyakov ,
Jarrad Harford  and
Buhui Qiu
Teodor Dyakov
Affiliation:
EDHEC Business [email protected]
Jarrad Harford
Affiliation:
University of Washington Foster School of [email protected]
Buhui Qiu*
Affiliation:
University of Sydney Business School
*
[email protected] (corresponding author)
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Abstract

We study the agency implications of increased disclosure using a regulatory change in the mutual fund industry as an experimental setting. This quasi-natural experiment mandated more frequent portfolio disclosure, which we show imposes managerial skill-reassessment risks from investors on funds with high relative performance volatility. In turn, this risk translates into greater agency costs to investors. We show that high-volatility funds, relative to low-volatility funds, responded to the increased skill-reassessment risk after regulation with an increase in management fees and a decrease in risk taking. These actions get transmitted to fund investors in the form of inferior net performance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 4 , June 2022 , pp. 1529 - 1563
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank an anonymous referee, Otgo Erhemjamts, Mara Faccio (the editor), Bart Frijns, Ying Gan, Yaniv Grinstein, Michelle Hanlon, Joshua Madsen, Christopher Polk, Mathijs van Dijk, and Qiaoqiao Zhu; session participants at the 2015 Finance Research Network (FIRN) Conference, 2015 Auckland Finance Meeting, 2015 Financial Management Association (FMA) Meeting, and 2015 Financial Accounting and Reporting Section (FARS) Midyear Meeting; and seminar participants at Erasmus University and Vrije Universiteit Amsterdam for helpful comments and suggestions. All errors are our own.

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