Performance changes following top management turnover: Evidence from open-end mutual funds

I examine the impact of mutual fund manager replacement on subsequent fund performance. Using a sample of 393 domestic equity and bond fund managers t hat were replaced over the 1979-1991 period, for the underperformers, I doc ument significant improvements in post-replacement performance relative to the past performance of the fund. On the other hand, the replacement of ove rperforming managers results in deterioration in post-replacement performan ce. I find evidence supporting the presence of strategic risk shifting in t he fund portfolios prior to replacement. Furthermore, consistent with the n otion of window dressing, I document that the level of portfolio turnover a ctivity decreases significantly in the post-replacement period. Lastly, the replacement of poor performers is preceded by significant decreases in net new inflows in the fund.