Top management turnover an empirical investigation of mutual fund managers

Market Discipline and Internal Governance in the Mutual Fund Industry

“…The optimal replacement threshold is 0.0732, which is significantly below 0.20, the expected ability of a new manager. Since the downward movement of a t before it hits the replacement threshold is associated with bad performance and decreasing fund inflows, our model is consistent with the empirical findings of Khorana (1996), Khorana (2001, and Chevalier and Ellison (1999a). The expected length of of a new manager's tenure is 5.68 years under this base case parameterization.…”

“…7 There is also a strand of literature on the turnover of portfolio managers. Khorana (1996) documents an inverse relation between the probability of manager replacement and past fund performance, measured by asset growth rate and portfolio returns. Chevalier and Ellison (1999a) find a similar result.…”

The Good or the Bad? Which Mutual Fund Managers Join Hedge Funds?

“…The first strand investigates internal signals affecting the retention and promotion of managers (e.g., Weisbach 1988;Fee, Hadlock, and Pierce 2006;Lehn and Zhao 2006;and Cichello, Fee, Hadlock, and Sonti 2009). The asset management profession provides a unique context for labor market research with a well-tracked investment performance for individual fund managers (e.g., see Khorana 1996;and Chevalier and Ellison 1999). Consistent with these studies, we find that better performing managers are retained and promoted while poorly performing ones are fired.…”

Top Management Turnover: An Examination of Portfolio Holdings and Fund Performance

“…Khorana (1996) highlights that it is not uncommon for funds to have directors on the board who are also employees of the investment advisory entity. While the board is required to regularly review the performance of the investment advisor, Khorana (1996) identifies that where mutual funds have individuals serving as both a director and advisor, challenges arise in ensuring that appropriate governance mechanisms are operating in the interests of investors. Therefore, the performance monitoring of an advisor is critically important in ensuring that effective internal control mechanisms are in operation, such that the replacement of a mutual fund manager occurs in the event of poor performance.…”

“…Khorana (1996Khorana ( , 2001) investigated top management turnover in the U.S. mutual fund industry and found that the turnover event is predictable based on past performance, and that postreplacement, underperforming (outperforming) funds experience a significant improvement (deterioration) in risk-adjusted returns. Chevalier and Ellison (1999b) also examine the turnover of mutual fund managers on the basis of age, and find younger managers are more susceptible to replacement where fund risk deviates from the average portfolio according to investment objective.…”