Tax-Efficient Asset Management: Evidence from Equity Mutual Funds

We investigate the relation between tax burdens and mutual fund performance from both a theoretical and an empirical perspective. The theoretical model introduces heterogeneous tax clienteles in an environment with decreasing returns to scale and shows that the equilibrium performance of mutual funds depends on the size of the tax clienteles. Our empirical results show that the performance of U.S. equity mutual funds is related to their tax burdens. We find that tax-efficient funds exhibit not only superior after-tax performance, but also superior before-tax performance due to lower trading costs, favorable style exposures, and better selectivity.

Keywords: Dividend and Capital Gains Taxes, Mutual Fund Performance

JEL Classification: G18, G20, G23, H24

Suggested Citation: Suggested Citation

Sialm, Clemens and Zhang, Hanjiang, Tax-Efficient Asset Management: Evidence from Equity Mutual Funds (August 31, 2019). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2368625 or http://dx.doi.org/10.2139/ssrn.2368625