Essays in Asset Management and Corporate Credit Markets

In the first chapter of this dissertation I investigate the extent to which firm cash holdings are affected by credit default swap (CDS) coverage of their product market peers. Using a sample of firms incorporated in the US, and defining peer groups using the text-based industry classification of Hoberg and Phillips (2016), I find that firm cash-to-asset ratios and relative-to-peer cash ratios are positively related to peer CDS coverage. The marginal effects are meaningful at approximately 2 and 9 percent of the sample medians respectively. Decomposing peer firm CDS coverage by relative financial constraints suggests that the effects are due to predatory motives.

In chapter two, I examine whether obtaining a foreign presence through sub-advisors affects fund performance and management behaviours of international equity mutual funds sold in the US. I find no evidence that international sub-advisors exploit information in a way that improves fund performance. Moreover, funds that hire outsourced international sub-advisors are found to underperform on a risk-adjusted basis by up to 126 basis points (bps) annually. The underperformance of outsourced international sub-advisors is concentrated in their local holdings and can be partly explained by lower activeness and greater risk shifting. These effects are alleviated in funds with multiple sub-advisors as they are more likely to be terminated following poor performance.

In the final chapter, I investigate the extent to which competition from low-cost index funds affects fees, performance, and survival rates of actively managed funds. I measure the intensity of competition using the market value of holdings overlap between the portfolios of index entrants and active incumbents. Disentangling the competitive effects of traditional index funds (market index) from smart-beta index funds (factor index), I find that future changes in actively managed net fees are negatively related to factor index fund entry but unrelated to market index fund entry. Additionally, I find that both factor and market index entry are negatively related to active incumbent survival rates and that this effect is most pronounced for relatively expensive active incumbents. Lastly, I find evidence that factor index entry has had an attenuating effect on active incumbent future performance.