Returns to Scale from Labor Specialization: Evidence from Asset Management Mergers

Abstract We study human capital synergies in asset management mergers that stem from the improved ability to assign fund managers to more specialized tasks in larger firms. More specialized task assignment allows rotated managers to focus on their investment expertise and leads to incremental $54 million of value added per deal per year on average. The effects are concentrated in mergers that lead to a large increase in firm size and in funds whose management appears less specialized prior to the merger. Our results provide direct evidence on the role of firms in the assignment of tasks to fund managers.