Working Paper: NBER ID: w20138
Authors: Jonathan B. Berk; Jules H. Van Binsbergen; Binying Liu
Abstract: We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. At least 30% of the value mutual fund managers add can be attributed to the firm's role in efficiently allocating capital amongst its mutual fund managers. We find no evidence of a similar effect when a firm hires managers from another firm. We conclude that an important reason why firms exist is the private information that derives from the firm's ability to better assess the skill of its own employees.
Keywords: capital allocation; mutual funds; manager performance; informational advantage
JEL Codes: D22; G11; G12; G20; G3; G30; J01; J24; L22; L23; L25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm's informational advantages (L15) | Internal capital reallocation decisions (D25) |
| Firm's role in internal reallocations (D21) | Changes in future value added (F29) |
| External hires (M51) | Future value added (G19) |
| Internal capital reallocation decisions (promotions) (J62) | Manager's subsequent value added (D46) |
| Internal capital reallocation decisions (demotions) (J62) | Manager's subsequent value added (D46) |
| Internal capital reallocation decisions (D25) | Manager performance (L25) |