Delegation chains

Dasgupta, Amil ORCID: 0000-0001-8474-9470 and Maug, Ernst (2022) Delegation chains. Financial Markets Group Discussion Papers (858). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We ask why we observe multiple layers of decision-making in fund management with investors, sponsors, fund managers, and consultants, even if additional decision-makers are costly and do not contribute to superior performance. In our model, an investor hires a wealth manager ("sponsor"), who can delegate asset allocation decisions to a fund manager with investing abilities inferior to her own. Delegation results in lower performance but may be chosen because it reduces the sponsor's reputational risk: Offloading decisions to fund managers creates an additional decision-maker who may be responsible for inferior performance and garbles inferences about the sponsor's ability. We characterize when excessive delegation arises and the properties of delegation chains.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2022 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions
JEL classification:	G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance G - Financial Economics > G1 - General Financial Markets > G10 - General G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
Date Deposited:	18 May 2023 08:36
Last Modified:	11 Dec 2024 19:44
URI:	http://eprints.lse.ac.uk/id/eprint/118852

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