Work Experience and Managerial Performance: Evidence from Chinese Mutual Funds

Lu ZHENG, Songnan HUANG, Jing SHI, and Qiaoqiao ZHU.

Work experience is a key factor in hiring decisions. However, there has been limited empirical evidence on how and to what extent work experience matters to job performance. This paper fills the gap by examining how work experience affects investment performance and behavior of mutual fund managers.

Using a sample of Chinese fund managers, the study finds that styles and performance vary across managers of different career backgrounds. Notably, managers of research and especially government backgrounds show higher risk adjusted returns and take less systematic risk. Further analyses of holdings’ characteristics suggest that these managers have an informational advantage likely gained through prior work experience. In contrast, managers with experience in other investments generate high raw returns largely by loading on systematic risk and chasing momentum. These effects persist even after controlling for both fund and time fixed effects. Fund managers of banking background perform the worst, but they exhibit higher ability to attract new money flow. Overall, the study provides evidence that work experience matters to management style and performance.

The study is executed by Professor Lu Zheng (Long Institute and Paul Merage School of Business, University of California at Irvine), Professor Songnan Huang, Professor Jing Shi and Professor Qiaoqiao Zhu (Australia National University).