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You’re Fired! New Evidence on Portfolio Manager Turnover and Performance

2015; Cambridge University Press; Volume: 50; Issue: 4 Linguagem: Inglês

10.1017/s0022109015000125

1756-6916

Leonard Kostovetsky, Jerold B. Warner,

Auditing, Earnings Management, Governance

Abstract We study managerial turnover for both internally managed mutual funds and those managed externally by subadvisors. We argue that turnover of subadvisors provides sharper tests and helps address several unresolved issues and puzzles from the previous literature. We find dramatically stronger inverse relations between subadvisor departures and lagged returns, and new evidence on how past flow predicts turnover. We find no evidence of improvements in return performance related to departures, but flow improvements are associated with departures of poor past performers. Our findings represent new evidence on how investors, sponsors, and boards learn about and evaluate mutual fund management performance.