We examine the effect that an exogenously, specifically governmentally required change in compensation contract had on a managerial decision. We find that a group of mutual funds changed their portfolio risk levels after they were forced to change their performance fee schedules. Their portfolio risk choices differed predictably from a randomly selected group of nonperformance fee funds and a group of performance fee funds that were not required to change their compensation contracts. In addition, the affected mutual funds lost both shareholders and assets around the time of the imposition of the restriction while the other funds exhibited little change or gained assets and shareholders.