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JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. This content downloaded from 128.235.251.160 on TueAbstract I examine the impact of mutual fund manager replacement on subsequent fund perfor? mance. Using a sample of 393 domestic equity and bond fund managers that were replaced over the 1979-1991 period, for the underperformers, I document significant improvements in post-replacement performance relative to the past performance of the fund. On the other hand, the replacement of overperforming managers results in deterioration in postreplacement performance. I find evidence supporting the presence of strategic risk shifting in the fund portfolios prior to replacement. Furthermore, consistent with the notion of win? dow dressing, I document that the level of portfolio turnover activity decreases significantly in the post-replacement period. Lastly, the replacement of poor performers is preceded by significant decreases in net new inflows in the fund. I. IntroductionThe academic literature has devoted considerable attention to understand?ing the effectiveness of various corporate governance mechanisms, ranging from shareholder activism to monitoring activities on the part of boards of directors and large blockholders. Past research on regulating the behavior of corporate man? agers has also focused on the disciplinary forces of the external product market, the takeover market, and the managerial labor market.1 In addition, the literature on executive compensation has attempted to examine the effect of incentives on managerial behavior. While the linkages among various stakeholders in a corporation have been extensively examined along with the impact of incentives on managerial behavior,

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