Pay-performance Sensitivity and Firm Size: Insights From the Mutual Fund Industry

I examine the ex ante decision to make an agent\u27s pay-performance sensitivity an inverse function of organization size. I focus on mutual funds and their decision to use compensation contracts that reduce the advisor\u27s marginal compensation as the fund grows (a declining-rate contract) over the dominant contract type, where marginal compensation is unrelated to fund size (a single-rate contract). I find evidence consistent with the view that declining-rate contracts are a mechanism to keep marginal compensation in line with the advisor\u27s declining marginal product. Specifically, I find that funds with greater exposure to diseconomies of scale are more likely to use a declining-rate contract and to specify a greater amount of compensation decline in their contracts. Consistent with optimal contracting, I find no evidence of a performance difference between funds with declining-rate contracts and funds with single-rate contracts

Convenience in the mutual fund industry

Abstract I examine the role of convenience in the mutual fund industry. I find that investors pay more for relatively convenient funds, and that the flows to convenient funds are less responsive to performance. These findings suggest that investors do not evaluate mutual funds independently, but rather that investors select a primary fund, likely based on beliefs about managerial ability, and then select funds which are relatively convenient to this primary fund. Highlights ► I find that investors pay a significant premium to invest in convenient mutual funds. ► I find that the flows to convenient funds are indifferent to fund performance. ► These results demonstrate the importance of convenience to mutual fund investors. ► They suggest that investors choose a primary fund and then funds that are convenient

Locating Decision Rights: Evidence from the Mutual Fund Industry

Mutual fund advisors make portfolio decisions for their funds on a daily basis. We examine the location of these portfolio decision rights on two dimensions. First, we consider the geographic location of the decision rights. Second, we consider whether the decision rights remain with an advisor or are allocated to an independent sub-advisor. We argue that the allocation of portfolio decision rights involves a tradeoff between the opportunity cost of not matching decision rights with specific knowledge, and the agency costs associated with moving the decision rights to the specific knowledge. The patterns in the location of decision rights are consistent with the tradeoff being a meaningful determinant of the allocation of decision rights in the mutual fund industry. We also find that funds that are predicted to be sub-advised and are sub-advised outperform those that are predicted to be sub-advised but are not

Going Overboard? On Busy Directors and Firm Value

Abstract The literature disagrees on the link between so-called busy boards (where many independent directors hold multiple board seats) and firm performance. Some argue that busyness certifies a director’s ability and that such directors are value enhancing. Others argue that “over-boarded” directors are ineffective and detract from firm value. We find evidence that (1) the disparate results in prior work stem from differences in both sample composition and empirical design, (2) on balance the results suggest a negative association between board busyness and firm performance, and (3) the inclusion of firm fixed effects dramatically affects the conclusions drawn from, and the explanatory power of, multivariate analyses. We also explore alternative empirical definitions of what constitutes a busy director and find that commonly used proxies for busyness perform well relative to more complex alternatives. Highlights ► The disparate busy director findings result from different samples and methodology. ► Including firm fixed effects results in a constant negative relation. ► The common busy director definition is as informative as more intense alternatives

Clawback Provisions in Real Estate Investment Trusts

Using a sample of 195 unique real estate investment trusts (REITs), we examine factors related to the adoption of clawback provisions within managerial compensation contracts. In general, we find strong and consistent empirical evidence that clawback provision are directly related to firm size, complexity, leverage, growth options, monitoring incentives, and CEO performance incentives. We also find that clawbacks are associated with enhanced market and accounting performance, with stronger performance relations observed for adoption decisions tied directly to regulatory mandates. In sum, we conclude compensation clawback provisions represent a value-relevant, strategic governance mechanism for REITs

Advisor Choice in Asia-Pacific Property Markets

This paper examines advisor choice decisions by publicly traded REITs and listed property companies in Asia-Pacific real estate markets. Using a sample of 168 firms, we find robust evidence that firms strategically evaluate and compare the increased agency costs associated with external advisement against the potential benefits associated with collocating decision rights with location specific soft information. Our empirical results reveal real estate companies tend to hire external advisors when they invest in countries: 1) that are more economically and politically unstable, 2) whose legal system is based on civil law, 3) where the level of corruption is perceived to be high, and 4) when disclosure is relatively poor. Additionally, we find the probability of retaining an external advisor is directly related to the expected agency costs. Lastly, we find evidence of return premiums in excess of 13 % for firms whose organizational structure matches their investment profile. As such, we conclude that the decision to hire an external advisor represents a value relevant trade-off between the costs and benefits of this organizational arrangement

Capital Structure and Political Risk in Asia-Pacific Real Estate Markets

This study investigates the determinants of capital structure decisions by real estate firms, with a specific focus on the impact of political risk on leverage. Using a sample of Asia-Pacific REITs and listed property trusts, we find those firms with properties located in countries characterized by relatively high degrees of political risk, such as political instability, and/or greater uncertainty in the ability to repatriate and monetize profits from international investment activities, employ less debt than their counterparts operating in more politically stable environments. This core finding remains robust to alternative sample selection criteria including the division of the sample into high versus low market-to-book value firms, and also holds within the subset of organizations that are active in raising additional capital in the secondary markets

Tracing the magnetic field of IRDC G028.23-00.19 using NIR polarimetry

The importance of the magnetic (B) field in the formation of infrared dark clouds (IRDCs) and massive stars is an ongoing topic of investigation. We studied the plane-of-sky B field for one IRDC, G028.23-00.19, to understand the interaction between the field and the cloud. We used near-IR background starlight polarimetry to probe the B field and performed several observational tests to assess the field importance. The polarimetric data, taken with the Mimir instrument, consisted of H-band and K-band observations, totaling 17,160 stellar measurements. We traced the plane-of-sky B-field morphology with respect to the sky-projected cloud elongation. We also found the relationship between the estimated B-field strength and gas volume density, and we computed estimates of the normalized mass-to-magnetic flux ratio. The B-field orientation with respect to the cloud did not show a preferred alignment, but it did exhibit a large-scale pattern. The plane-of-sky B-field strengths ranged from 10 to 165 μG, and the B-field strength dependence on density followed a power law with an index consistent with 2/3. The mass-to-magnetic flux ratio also increased as a function of density. The relative orientations and relationship between the B field and density imply that the B field was not dynamically important in the formation of the IRDC. The increase in mass-to-flux ratio as a function of density, though, indicates a dynamically important B field. Therefore, it is unclear whether the B field influenced the formation of G28.23. However, it is likely that the presence of the IRDC changed the local B-field morphology.We thank J. Montgomery, T. Hogge, and I. Stephens for constructive discussions on the analysis. We are grateful to R. Crutcher for permission to include his Zeeman data. This research was conducted in part using the Mimir instrument, jointly developed at Boston University and Lowell Observatory and supported by NASA, NSF, and the W.M. Keck Foundation. This research made use of the NASA/IPAC Infrared Science Archive, which is operated by the Jet Propulsion Laboratory, California Institute of Technology (Caltech), under contract with NASA. This publication made use of data products from the Two Micron All Sky Survey, which was a joint project of the University of Massachusetts and the Infrared Processing and Analysis Center/Caltech, funded by NASA and NSF. This work is based in part on data obtained as part of the UKIRT Infrared Deep Sky Survey. The ATLAS-GAL project is a collaboration between the Max-PlanckGesellschaft, the European Southern Observatory (ESO), and the Universidad de Chile. It includes projects E-181.C-0885, E-078.F-9040(A), M-079.C-9501(A), M-081.C-9501(A), and Chilean data. This publication makes use of molecular line data from the Boston University-FCRAO Galactic Ring Survey (GRS). The GRS is a joint project of Boston University and Five College Radio Astronomy Observatory, funded by the National Science Foundation under grants AST-9800334, 0098562, 0100793, 0228993, and. 0507657. A.E.G. acknowledges support from FONDECYT 3150570. This work was supported under NSF grants AST 09-07790 and 14-12269 and NASA grant NNX15AE51G to Boston University. We thank the anonymous referee for valuable feedback, which improved the quality of this work. (NASA; NSF; W.M. Keck Foundation; E-181.C-0885 - Max-Planck-Gesellschaft; E-078.F-9040(A) - Max-Planck-Gesellschaft; M-079.C-9501(A) - Max-Planck-Gesellschaft; M-081.C-9501(A) - Max-Planck-Gesellschaft; E-181.C-0885 - European Southern Observatory (ESO); E-078.F-9040(A) - European Southern Observatory (ESO); M-079.C-9501(A) - European Southern Observatory (ESO); M-081.C-9501(A) - European Southern Observatory (ESO); E-181.C-0885 - Universidad de Chile; E-078.F-9040(A) - Universidad de Chile; M-079.C-9501(A) - Universidad de Chile; M-081.C-9501(A) - Universidad de Chile; AST-9800334 - National Science Foundation; 0098562 - National Science Foundation; 0100793 - National Science Foundation; 0228993 - National Science Foundation; 0507657 - National Science Foundation; 3150570 - FONDECYT; AST 09-07790 - NSF; 14-12269 - NSF; NNX15AE51G - NASA