How smart is smart money? Evidence from mutual funds' exposure on corporate misconduct
Abstract We examine how mutual funds' trading and performance respond to corporate misconduct. We exploit a combined dataset of corporate misconduct and holding information of mutual funds and find that mutual funds tend to not only sell but also buy more stocks of corporations with misconduct. Moreover, the exposure to misconduct stocks is negatively related to mutual funds' future performance. The top quintile portfolio of funds with the highest level of misconduct exposure underperforms the bottom quintile by 1.57% to 1.97% on an annualized basis. This performance gap is wider when it is easier for fund managers to gain information advantages.
Authors
- Dongmin Kong (ORCID: https://orcid.org/0000-0001-5981-0452)
- Zhao Zhao (ORCID: https://orcid.org/0000-0001-7722-5433)
Institutions
- Huazhong University of Science and Technology (CN)
Publication Details
- Journal
- The Journal of Financial Research
- Published
- 2024-12-18
- DOI
- https://doi.org/10.1111/jfir.12448
- Primary Topic
- Auditing, Earnings Management, Governance
- Type
- article
- Field-Weighted Citation Impact
- 0.00
Funders
- Zhongnan University of Economics and Law
- National Natural Science Foundation of China
- Huazhong University of Science and Technology
- Jinan University
- Tongji University
- Wuhan University
- National Social Science Fund of China
- Trường Đại học Kinh tế - Luật, Đại học Quốc gia Thành phố Hồ Chí Minh