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Holding onto Your Horses: Conflicts of Interest in Asset Management

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  • Glenn Boyle
  • Graeme Guthrie
  • Luke Gorton

Abstract

Racehorse trainers operate unregulated asset management businesses in which the assets owned by outside clients compete with those owned by trainers for the latter's time, care, and attention. However, market mechanisms appear to deal effectively with the resulting agency problem in situations where it matters most. In a sample of 8,000 racehorses and their associated stables, we find that client-owned horses do indeed perform worse than their trainer-owned counterparts in small stables that have relatively few outside clients but that the reverse is true in large stables where client-owners provide much of the trainer's income: agents with more to lose apparently behave better. Moreover, they appear to have good reasons for behaving better: client-owned horses that underperform are more likely to be transferred to another stable, thereby causing a loss of income for the original trainer.

Suggested Citation

  • Glenn Boyle & Graeme Guthrie & Luke Gorton, 2010. "Holding onto Your Horses: Conflicts of Interest in Asset Management," Journal of Law and Economics, University of Chicago Press, vol. 53(4), pages 689-713.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/649644
    DOI: 10.1086/649644
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    Cited by:

    1. Glenn Boyle & Gerald Ward, 2016. "Do Better Informed Investors Always Do Better?," Working Papers in Economics 16/29, University of Canterbury, Department of Economics and Finance.
    2. Alasdair Brown, 2012. "Examining Agency Conflict in Horse Racing," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 388-398, October.
    3. Glenn Boyle & Gerald Ward, 2018. "Do Better Informed Investors Always Do Better? A Buyback Puzzle," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 2137-2157, October.
    4. Stacey Beaumont & Raluca Ratiu & David Reeb & Glenn Boyle & Philip Brown & Alexander Szimayer & Raymond Silva Rosa & David Hillier & Patrick McColgan & Athanasios Tsekeris & Bryan Howieson & Zoltan Ma, 2016. "Comments on Shan and Walter: ‘Towards a Set of Design Principles for Executive Compensation Contracts’," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 685-771, December.

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