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Skin in the Game versus Skimming the Game: Governance, Share Restrictions, and Insider Flows

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  • Ozik, Gideon
  • Sadka, Ronnie

Abstract

This paper advances the proposition that share restrictions engender potential conflicts of interest between fund managers and investors. Fund flows predict future fund returns for share-restricted funds, especially among funds with low levels of governance and funds managing insiders’ wealth, providing managers incentive to trade in advance of their clients. Some direct evidence for such managerial action is presented, using proprietary data on managerial investment in their own funds. The evidence suggests that private information about a fund, not necessarily its holdings, may constitute material information, with implications for proper fund governance and disclosure policy concerning managerial actions.

Suggested Citation

  • Ozik, Gideon & Sadka, Ronnie, 2015. "Skin in the Game versus Skimming the Game: Governance, Share Restrictions, and Insider Flows," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(6), pages 1293-1319, December.
    • Handle: RePEc:cup:jfinqa:v:50:y:2015:i:06:p:1293-1319_00
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    Cited by:

    1. Sun, Lin & Teo, Melvyn, 2019. "Public hedge funds," Journal of Financial Economics, Elsevier, vol. 131(1), pages 44-60.
    2. Guillermo Baquero & Marno Verbeek, 2022. "Hedge Fund Flows and Performance Streaks: How Investors Weigh Information," Management Science, INFORMS, vol. 68(6), pages 4151-4172, June.
    3. Arpit Gupta & Kunal Sachdeva, 2019. "Skin or Skim? Inside Investment and Hedge Fund Performance," NBER Working Papers 26113, National Bureau of Economic Research, Inc.
    4. Judy Qiu & Leilei Tang & Ingo Walter, 2018. "Hedge fund incentives, management commitment and survivorship," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 32(2), pages 115-142, May.
    5. Hao Liang & Lin Sun & Melvyn Teo, 2022. "Responsible Hedge Funds [Role of managerial incentives and discretion in hedge fund performance]," Review of Finance, European Finance Association, vol. 26(6), pages 1585-1633.
    6. Charles Cao & Grant Farnsworth & Bing Liang & Andrew W. Lo, 2017. "Return Smoothing, Liquidity Costs, and Investor Flows: Evidence from a Separate Account Platform," Management Science, INFORMS, vol. 63(7), pages 2233-2250, July.

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