Identity, Diversity, and Team Performance: Evidence from U.S. Mutual Funds

We examine team diversity and performance in the asset management industry through the lens of identity. Focusing on political ideology as the relevant dimension of identity, we find that diverse teams outperform homogeneous teams. The mechanism involves both improved decision making due to more diverse perspectives and increased monitoring by heterogeneous team members. The benefits of ideological diversity are undone when political polarization is higher, consistent with increased intrateam conflict. In examining why less diverse teams are prevalent in asset management, we find entrenched managers prefer homogeneous teams, and the local labor market supply of ideologically diverse managers is constrained. This paper was accepted by Victoria Ivashina, finance. Funding: This work was funded by the Fundação para a Ciência e a Tecnologia [UID/ECO/00124/2013 and Social Sciences DataLab, Project 22209], POR Lisboa [LISBOA-01-0145-FEDER-007722 and Social Sciences DataLab, Project 22209], and POR Norte [Social Sciences DataLab, Project 22209]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.00544 .