Does Financial Globalization Propagate Managerial Skills? Lessons from the Mutual Fund Industry

We examine whether financial globalization helps propagate the managerial skills of financial institutions. Using a complete sample of global mutual funds, we find that low-skilled fund companies may strategically differentiate their products by launching new funds that track less-explored foreign equity market indices. These new funds bring in asset growth to their managing companies but fail to deliver performance or diversification benefits to their investors. Moreover, their associated crossborder capital flows reduce price efficiency and liquidity in the target country, suggesting that globalization is not necessarily accompanied by the propagation of the beneficial influence of