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Locating decision rights: Evidence from the mutual fund industry

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  • Cashman, George D.
  • Deli, Daniel N.
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    Abstract

    Mutual fund advisors make portfolio decisions for their funds on a daily basis. We examine the location of these portfolio decision rights on two dimensions. First, we consider the geographic location of the decision rights. Second, we consider whether the decision rights remain with an advisor or are allocated to an independent sub-advisor. We argue that the allocation of portfolio decision rights involves a tradeoff between the opportunity cost of not matching decision rights with specific knowledge, and the agency costs associated with moving the decision rights to the specific knowledge. The patterns in the location of decision rights are consistent with the tradeoff being a meaningful determinant of the allocation of decision rights in the mutual fund industry. We also find that funds that are predicted to be sub-advised and are sub-advised outperform those that are predicted to be sub-advised but are not.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 12 (2009)
    Issue (Month): 4 (November)
    Pages: 645-671

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    Handle: RePEc:eee:finmar:v:12:y:2009:i:4:p:645-671

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    Web page: http://www.elsevier.com/locate/finmar

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    Cited by:
    1. Cashman, George D., 2010. "Pay-performance sensitivity and firm size: Insights from the mutual fund industry," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 400-412, September.
    2. Cashman, George D., 2012. "Convenience in the mutual fund industry," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1326-1336.
    3. George Cashman & David Harrison & Michael Seiler, 2014. "Advisor Choice in Asia-Pacific Property Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 48(2), pages 271-298, February.

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