Of Tournaments and Temptations: An Analysis of
Managerial Incentives in the Mutual Fund Industry
Keith C. Brown
W.V. Harlow
Laura T. Starks
Journal of Finance 51, 1996, pp. 85-110
We test the hypothesis that when their compensation is
linked to relative performance, managers of investment portfolios likely to end
up as “losers” will manipulate fund risk differently than those
managing portfolios likely to be “winners”. An empirical investigation of the performance
of 334 growth-oriented mutual funds during 1976 to 1991 demonstrates that
mid-year losers tend to increase fund volatility in the latter part of an
annual assessment period to a greater extent than mid-year winners. Furthermore, we show that this effect became
stronger as industry growth and investor awareness of fund performance
increased over time.
Download this paper (PDF
format)
Return to
Keith Brown’s Published Paper Page