Friend or Foe: Information Transmission and Competition among Mutual Fund Managers

Using the education and prior work experience of mutual fund managers, we study the effect of competition on information transmission among connected individuals. We find that well-connected managers make similar trades, and outperform their less connected peers. As competition and the cost-benefit of sharing information increases, well-connected managers are less likely to share information, and benefit less from their social networks. Further, well-connected managers do not outperform their peers during bear markets, when competition is highest; or in cooperative fund families, when the value of sharing is low. Consistent with prior theory, we show that connected individuals respond directly to competitive pressures when making the decision to share value relevant information.