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.