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

Xiangang Xin, P. Eric Yeung and Zilong Zhang

Journal of Accounting Research, 2024, vol. 62, issue 2, 737-781

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.

Date: 2024
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https://doi.org/10.1111/1475-679X.12527

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Persistent link: https://EconPapers.repec.org/RePEc:bla:joares:v:62:y:2024:i:2:p:737-781

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Journal of Accounting Research is currently edited by Philip G. Berger, Luzi Hail, Christian Leuz, Haresh Sapra, Douglas J. Skinner, Rodrigo Verdi and Regina Wittenberg Moerman

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