Why Constrain Your Mutual Fund Manager?

  title={Why Constrain Your Mutual Fund Manager?},
  author={Andr{\'e}s Almaz{\'a}n and Keith Cates Brown and Murray Carlson and David A. Chapman},
  journal={ERN: Governance \& Ownership (Topic)},
We examine the form, adoption rates, and economic rationale for the investment restrictions found in the contracts between mutual fund investors and managers. Based on a sample of U.S. domestic equity funds from 1994 to 2000, we find systematic patterns in the use of policy constraints that are consistent with an optimal contracting view of the fund industry. In particular, restrictions are more frequently present when it is relatively less beneficial to use direct methods to monitor manager… 
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