| Abstract: |
Mutual funds face the risk of withdrawals if they perform poorly in the short term, which
encourages manager myopia. We show that fund families can insulate managers from
this funding pressure via compensation tied to long-term fund performance. Managers
with long-horizon contracts are more likely to undertake long-term investments and
outperform their constrained peers. Since long-horizon pay does not shut off the
funding pressure, it simply insulates the manager from it, not all families can offer these
contracts. Long-horizon contracts are more prevalent in families that cater to patient
investors and have more resources to buffer liquidity shocks.
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Biography:
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Dr. Feng Zhang is an associate professor of finance at the Cox School of Business of the Southern Methodist University. Before joining SMU in October 2021, he worked at the David Eccles School of Business within the University of Utah as an associate and assistant professor starting from 2011. He received his PhD in finance from the University of British Columbia. Prof. Zhang is a world-renowned expert in the areas of long-run event studies, corporate decisions, and investment. His work has been published in elite finance journals including the Journal of Financial Economics, Review of Financial Studies, Management Science, Critical Finance Review, and the Journal of Corporate Finance. His research has also been featured in numerous media reports including Bloomberg, Harvard Business Review, Wall Street Journal, Reuters, Time Magazine, CNBC, New York Times, Los Angeles Times, BBC World Radio, Fox News, Washington Post, Huffington Post, and Telegraph.
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