The Role of Portfolio Disclosures in the Mutual Fund Industry

Abstract

I study whether increased transparency of fund portfolio disclosures improves outcomes for mutual fund investors. Exploiting the staggered adoption of the SEC's Form N-PORT, which improved the quality and quantity of information on fund strategies and risk profiles, I find a reduction in performance manipulation and managerial rent extraction, evidenced by decrease in risk shifting and management fees. The results are pronounced among funds that offer institutional share classes, suggesting that institutional investors benefit more from the new disclosures. I also show that investors become better at allocating capital to funds that will perform well in the future. Collectively, my findings highlight the role of portfolio disclosures in mitigating agency problems in delegated asset management by affecting managers' and investors' investment decisions.