Abstract
Co-investment, often seen as a remedy for agency problems, may incentivize managers to cater to own preferences. We provide evidence that mutual fund managers with considerable co-investment stakes alter risk-taking decisions to prioritize their own tax interests. By exploiting the enactment of the American Taxpayer Relief Act 2012 as an exogenous shock of managerial capital gains taxes, we observe that co-investing fund managers increase risk-taking by 8%. Specifically, these managers adjust their portfolios by investing in stocks with higher beta. The observed effect appears to be driven by agency incentives, particularly for funds with a more convex flow-performance relationship and for managers who have underperformed. Such tax-induced behavior is associated with negative fund performance. We highlight the role of co-investment in transmitting managerial tax shocks to mutual funds.
Presentations:
- Paris December Meeting 2023 (scheduled)
- FMA 2023 (scheduled)
- ERC/HEC Paris PhD Workshop 2023
- IIPF 2023*
- Taiwan Economics Research 2023
- EAA 2023*
- AFA 2023 (poster)
- GESS research day of University of Mannheim
- Bi-annual WHU Young Scholar Tax Conference 2022*
- Finance Area Brownbag Seminar of University of Mannheim, 2022
- DGF 2022
- MannheimTaxation Conference 2022*
- RBFC 2022 (poster)
- Corporate Governance Research Seminar of University of Mannheim, 2022
- Virtual Doctoral Tax Brownbag of Ingolstadt School of management, University of Paderborn, and KU Research Institute for Taxation, 2022*
- Frankfurt and Mannheim Ph.D. Workshop, 2022
- EAA Doctoral Colloquium 2022*
- ZEW public finance conference 2022
*presented by the co-author
Chia-Yi Yen
Ph.D. Candidate in Finance
Chia-Yi Yen is currently a finance Ph.D. candidate at the Mannheim Business School in Germany. Her research interest lies in empirical macro finance, mutual funds, and corporate governance. She has published empirical macro finance papers on decent field journals and diligently worked on a number of research projects. Prior to her doctoral studies, she worked as a financial engineer in the fund industry and a data science consultant for financial institutions.