This paper argues that the legacy potential of a firm's strategy is an important determinant of CEO compensation, turnover, and strategy change. A legacy makes CEO replacement expensive, because firm performance can only partially be attributed to a newly employed manager. Boards may therefore optimally allow an incumbent to be entrenched. Moreover, when a firm changes strategy it is optimal to change the CEO, because the incumbent has a vested interest in seeing the new strategy fail. Even though CEOs have no specific skills in our model, legacy issues can explain the empirical association between CEO and strategy change.

Incubation is a strategy for initiating new funds, where multiple funds are started privately, and, at the end of an evaluation period, some are opened to the public. Consistent with incubation being used by fund families to increase performance and attract flows, funds in incubation outperform nonincubated funds by 3.5% risk‐adjusted, and when they are opened to the public they attract higher flows. Postincubation, however, this outperformance disappears. This performance reversal imparts an upward bias to returns that is not removed by a fund size filter. Fund age and ticker creation date filters, however, eliminate the bias.