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Performance ranking, regulatory penalty, and improper risk adjustment behavior of fund managers

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  • Yang, Qin

Abstract

This study is based on a sample dataset of Chinese open-end funds, empirically examining the relationship between performance ranking, regulatory penalty, and improper risk adjustment behavior of fund managers. The results indicate that class B penalties related to criminal offenses could mitigate the improper risk adjustment behavior resulting from agency issues among fund managers, thereby exerting an indirect deterrent effect. However, if the fund experiences a lower ranking in the mid-term evaluation or the top 20 stocks of a sample fund are subjected to regulatory penalties in the first half of the year, the impact is entirely reversed. Secondly, there is a positive correlation between the intensity of regulatory penalties and the degree of inhibition of fund managers’ improper risk adjustment behavior. The larger the expected gap and historically expected surplus, the more pronounced the trend of increasing improper risk-taking becomes. Finally, this paper conducted a collective study on the characteristics of fund managers and discovered that highly educated fund managers are significantly influenced by class B penalties, resulting in an indirect deterrent effect.

Suggested Citation

  • Yang, Qin, 2024. "Performance ranking, regulatory penalty, and improper risk adjustment behavior of fund managers," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 261-279.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pa:p:261-279
    DOI: 10.1016/j.iref.2024.03.013
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    More about this item

    Keywords

    Performance ranking; Regulatory penalty; Agency problem; Risk adjustment;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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