Implications of manager replacement: evidence from the Spanish mutual fund industry

We analyse the financial consequences of manager replacement in a sample that includes all domestic and European equity funds in Spain. Specifically, we examine a total of 104 funds of the sample that experience manager turnover over the period 1999-2009. We find that underperforming funds in the pre-replacement period experience a significant improvement in the excess returns and performance after the manager change, an improvement that lasts over time for domestic equity funds. The analysis of the risk profile indicates that funds experiencing a manager change do not show significantly different levels of risk before the replacement dates although they tend to show an increase in the level of total risk after the change. Finally, the pool-regression analysis of the investment flows confirms that manager changes tend to impact negatively on subsequent flows of those funds with manager turnover.