Network-Induced Agency Conflicts in Delegated Portfolio Management

• 成果类型: Article
• 署名作者: Gao, Xinzi; Wong, T. J.; Xia, Lijun; Yu, Gwen
• 署名单位: Shenzhen University; University of Southern California; Shanghai Jiao Tong University; University of Michigan System; University of Michigan
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2015-0422
• 发表日期: 2021
• 页码: 171-198
• 关键词: institutional investors; fund management; Board structure; performance; INVESTMENT; OWNERSHIP; MARKET; governance; earnings; money

摘要

Social ties between mutual funds and the companies in which they invest (investees) can both facilitate information transfers and encourage favoritism. Using the investment choices of mutual funds in China, we compare investment performance of holdings in companies that are socially connected to mutual funds versus those that are not. We find that funds allocate more investment to connected investees' stocks, especially when a fund is weakly monitored. This overweighting is greater in times of poor investee performance, when the benefits of additional investment to the connected investees are high. Weakly monitored funds' preference for connected stocks hurts the returns of these funds, yielding a 6.6 percent lower annualized risk-adjusted return, relative to closely monitored funds. These results suggest that, absent sufficient monitoring, agency conflicts generated by social networks can dominate the information advantages of these networks.