Wrong Kind of Transparency? Mutual Funds’ Higher Reporting Frequency, Window Dressing, and Performance

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)737-781
Journal / PublicationJournal of Accounting Research
Volume62
Issue number2
Online published20 Feb 2024
Publication statusPublished - May 2024

Abstract

This study examines whether mandatory increase in reporting frequency exacerbates agency problems. Utilizing the setting of the 2004 SEC mandate on increased reporting frequency of mutual fund holdings, we show that increased reporting frequency elevates window dressing (buying winners or selling losers shortly before the end of the reporting period). This effect is driven by low-skill fund managers’ incentives to generate mixed signals. Funds managed by low-skill managers experience lower returns, more outflows, and a higher collapse rate when their window dressing is elevated after the 2004 rule change. These results suggest that, although higher reporting frequency on agents’ actions can exacerbate signal manipulations, the related manipulation costs improve sorting among agents in the longer term. © 2024 The Chookaszian Accounting Research Center at the University of Chicago Booth School of Business.

Research Area(s)

  • mutual funds, reporting frequency, window dressing, fund performance