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Abstract:
Using a new database, we study fees charged by 46,580 mutual fund classes offered for sale in 18 countries, which account for about 86% of the world fund industry in 2002. We examine management fees, total expense ratios, and total shareholder costs (which include load charges). Fees vary substantially across funds and from country to country. To explain these differences, we consider fund, sponsor, and national characteristics. Fees differ by investment objectives; larger funds and fund complexes charge lower fees; fees are higher for funds distributed in more countries and funds domiciled in certain offshore locations (especially when selling into countries levying higher taxes). Substantial cross-country differences persist even after controlling for these variables. These remaining differences can be explained by a variety of factors, the most robust of which is that fund fees are lower in countries with stronger investor protection.

Abstract:
We examine the investment behavior of market participants within different international markets (i.e., U.S., Hong Kong, Japan, South Korea, and Taiwan), specifically with regard to their tendency to exhibit herd behavior. We find no evidence of herding on the part of market participants in the U.S. and Hong Kong and partial evidence of herding in Japan. However, for South Korea and Taiwan, the two emerging markets in our sample, we document significant evidence of herding. The results are robust across various size-based portfolios and over time. Furthermore, macroeconomic information rather than firm-specific information tends to have a more significant impact on investor behavior in markets which exhibit herding. In all five markets, the rate of increase in security return dispersion as a function of the aggregate market return is higher in up market, relative to down market days. This is consistent with the directional asymmetry documented by McQueen, Pinegar, and Thorley (1996).

Abstract:
We examine the investment behavior of market participants within different international markets (i.e., U.S., Hong Kong, Japan, South Korea, and Taiwan), specifically with regard to their tendency to exhibit herd behavior. We find no evidence of herding on the part of market participants in the U.S. and Hong Kong and partial evidence of herding in Japan. However, for South Korea and Taiwan, the two emerging markets in our sample, we document significant evidence of herding. The results are robust across various size-based portfolios and over time. Furthermore, macroeconomic information rather than firm-specific information tends to have a more significant impact on investor behavior in markets which exhibit herding. In all five markets, the rate of increase in security return dispersion as a function of the aggregate market return is higher in up market, relative to down market days. This is consistent with the directional asymmetry documented by McQueen, Pinegar, and Thorley (1996).

Abstract:
Mutual fund investors generally desire high risk-adjusted performance at low cost, which is not necessarily the objective of fund families. Fund families generally want to maximize assets under management (i.e., their market share) and the resulting management fees. This paper examines how these conflicting objectives affect competition and investor behavior in the mutual fund industry for the universe of U.S. mutual fund families over the period 1979-1998. Over this period, industry assets increased by a factor of twenty, the number of active fund families tripled, and the average market share of a family declined by two thirds. We find that price competition is important in the industry. Families that charge lower fees than the competition gain market share, but only if these fees are above average to begin with. Low-cost families do not lose market share by charging higher fees. In addition, fees charged explicitly for marketing and distribution (12b-1 fees) have a positive impact on market share. We find no evidence that investors derive any benefit from 12b-1 fees. Product differentiation strategies are also effective in obtaining market share. Families that perform better, and start more funds relative to the competition (a measure of innovation) have a higher market share. Innovation is rewarded more if the new fund is more differentiated from existing offerings and is in a less crowded objective. Finally, market share within an investment objective is driven primarily by a family's policies within that objective, but there are important performance spillover effects from other funds in the family. Our findings are robust to various tests for endogeneity of the explanatory variables. Overall, this paper highlights a number of conflicts between fund families and investors.

Abstract:
This paper studies the mutual fund industry in 56 countries and tests various hypotheses to explain the extent to which this innovative form of financial intermediation has flourished. Consistent with related findings from the law and economics literature, the mutual fund industry is larger in countries with stronger rules, laws, and regulations, specifically where mutual fund investors' rights are better protected. The industry is smaller in countries where barriers to entry are higher, measured by the effort required to set up a new fund. The fund industry is larger in countries with wealthier and more educated populations, and where the industry itself is older. The fund industry is also larger in countries in which defined contribution pension plans are more prevalent and where trading costs are lower. These results indicate that laws and regulations, supply-side, and demand-side factors simultaneously affect the size of the mutual fund industry. These factors are also related to the recent growth rates of the fund industry across nations.

Abstract:
This paper studies the mutual fund industry in 56 countries and tests various hypotheses to explain the extent to which this innovative form of financial intermediation has flourished. Consistent with related findings from the law and economics literature, the mutual fund industry is larger in countries with stronger rules, laws, and regulations, specifically where mutual fund investors' rights are better protected. The industry is smaller in countries where barriers to entry are higher, measured by the effort required to set up a new fund. The fund industry is larger in countries with wealthier and more educated populations, and where the industry itself is older. The fund industry is also larger in countries in which defined contribution pension plans are more prevalent and where trading costs are lower. These results indicate that laws and regulations, supply-side, and demand-side factors simultaneously affect the size of the mutual fund industry. These factors are also related to the recent growth rates of the fund industry across nations.

Abstract:
We study mutual fund mergers between 1999 and 2001 to understand the role and effectiveness of fund boards. Some fund mergers - typically across-family fund mergers - benefit target shareholders but are costly to target fund directors. We examine whether certain governance structures relate to whether target boards approve these mergers. Fund mergers of this kind are more likely when funds underperform and when their boards are composed of a larger fraction of independent trustees. This strong interaction effect is consistent with more independent boards exhibiting a lower tolerance of poor performance before initiating across-family mergers. This effect is most pronounced when all of the fund's directors are independent, not at the 75% level of independence required by the SEC. Moreover, while boards approve across-family mergers that lead to substantial reductions in their own compensation, more highly paid target fund boards are less likely to approve these mergers. Other structural board characteristics (in particular, board size and independent chairs) are not strongly related to fund merger likelihoods and board structure is unrelated to post-merger performance.

mutual fund, board structure, mergers

Abstract:
This paper documents the range of portfolio manager ownership in the funds they manage and examines whether higher ownership is associated with improved future performance. Almost half of all managers have ownership stakes in their funds, though the absolute investment is modest. Future risk-adjusted performance is positively related to managerial ownership, with performance improving by about three basis points for each basis point of managerial ownership. These findings persist after controlling for various measures of fund board effectiveness. Fund manager ownership is higher in funds with better past performance, lower front-end loads, smaller size, longer managerial tenure, and funds affiliated with smaller families. It is also higher in funds with higher board member compensation and in equity funds relative to bond funds. Future performance is positively related to the component of ownership that can be predicted by other variables, as well as the unpredictable component. Our findings support the notion that managerial ownership has desirable incentive alignment attributes for mutual fund investors, and indicate that the disclosure of this information is useful in making portfolio allocation decisions.

Fund performance, portfolio manager ownership

Abstract:
This paper documents the level of portfolio manager ownership in the funds they manage and examines whether higher ownership is associated with improved future performance. Almost half of all managers have ownership stakes in their funds, though the absolute investment is modest. Future risk-adjusted performance is positively related to managerial ownership, with performance improving by about three basis points for each basis point of managerial ownership. These findings persist after controlling for various measures of fund board effectiveness. Fund manager ownership is higher in funds with better past performance, lower front-end loads, smaller size, funds affiliated with smaller families, and where the manager has been in charge for a longer period of time. It is also higher in funds with higher board member compensation and in equity funds relative to bond funds. Future performance is positively related to the component of ownership that can be predicted by other variables, as well as the unpredictable component. Our findings support the notion that managerial ownership has desirable incentive alignment attributes for mutual fund investors, and indicate that the disclosure of this information is useful in making portfolio allocation decisions.

manager ownership, fund performance, mutual fund board

Abstract:
In this paper, we examine the impact of NASD Rule 2711, NYSE Rule 472, and the Global Research Settlement on the recommendation performance of independent, affiliated, and unaffiliated analysts. We find that analysts from all three types of institutions issued fewer strong buys following these regulations designed to separate investment banking and equity research. Affiliated analysts were less likely to issue innovative recommendations. While downgrades became more prevalent following the regulations, they were significantly less informative. Independent research firms set up after the Global Research Settlement are of inferior quality; they issue more optimistic and less innovative recommendations that generate lower announcement period returns than independent firms existing prior to the Settlement. Our overall findings question whether investors will be better served via the shift in equity research to analysts at independent research firms.

Analysts, Investment banks, Independent Research institutions, Conflicts of interest, Analyst recommendations, Global Settlement

Abstract:
This study examines the determinants of mutual fund mergers and their subsequent wealth impact on shareholders of target and acquiring funds. Results indicate significant improvements in postmerger performance and a reduction in expense ratios for target fund shareholders. In contrast, acquiring fund shareholders experience a significant deterioration in postmerger performance. The net asset flows continue to remain negative for the combined fund in the year following the merger. The likelihood of a fund merger is inversely related to fund size for both within- and across-family mutual fund mergers. However, poor past performance is a significant determinant for only within-family mergers.

Abstract:
This study examines the determinants of mutual fund mergers and their subsequent wealth impact on shareholders of acquiring and target funds. Results indicate significant improvements in post-merger performance and a reduction in expense ratios for target fund shareholders. In contrast, shareholders of the acquiring fund experience a significant deterioration in post-merger performance. In the pre-merger period, both acquiring and target funds experience negative net asset flows, which continue to remain negative for the combined fund in the year after the merger. The likelihood of a fund merger is inversely related to fund size for both within- and across-family mergers. However, poor past performance is a significant determinant for within-family mergers but not for across-family mergers.

Abstract:
This study examines the determinants of mutual fund mergers and their subsequent wealth impact on shareholders of acquiring and target funds. Results indicate significant improvements in post-merger performance and a reduction in expense ratios for target fund shareholders. In contrast, shareholders of the acquiring fund experience a significant deterioration in post-merger performance. In the pre-merger period, both acquiring and target funds experience negative net asset flows, which continue to remain negative for the combined fund in the year after the merger. The likelihood of a fund merger is inversely related to fund size for both within- and across-family mergers. However, poor past performance is a significant determinant for within-family mergers but not for across-family mergers.

Abstract:
Using a sample of all-star analysts who switch investment banks between 1988 and 1999, we examine (1) whether analyst behavior is influenced by investment banking relationships and (2) whether analyst behavior affects investment banking deal flow (debt and equity underwriting and corporate control transactions). Although the stock coverage decision is dependent on the investment banking relationship with the client firms, we find no evidence that analysts change their optimism or recommendation levels when joining a new firm. Investment banking deal flow is related to analyst reputation only for equity underwriting transactions. For debt underwriting and M&A transactions, after controlling for bank reputation, analyst reputation does not matter. There is no evidence that issuing optimistic earnings forecasts or recommendations affects investment banking deal flow.

All-star analysts, analyst coverage, market share, investment bank relationships, conflicts of interests

Abstract:
This paper examines the value of sell-side analysts by analyzing the long-term consequences of a complete and permanent loss in analyst coverage for a firm. We find that in the years after the loss of coverage, sample firms are significantly more likely to perform poorly and get delisted relative to a matched sample, constructed based on the propensity for bankruptcy and potential to generate brokerage revenues. Our results are consistent with the hypothesis that analysts provide superior information beyond that publicly available in conventional proxies for bankruptcy. In addition, the observed deterioration in a firm's liquidity and institutional ownership in the post-coverage loss period sheds light on the role of analysts in mitigating the effects of limited investor attention.

Analyst coverage, Loss of coverage, Delisting, Bankruptcy prediction

Abstract:
For a sample of 1163 mutual funds started over the period 1979-1992, we find that fund initiations are positively related to the level of assets invested in and the capital gains embedded in other funds with the same objective, the fund family's prior performance, the fraction of funds in the family in the low range of fees, and the decision by large families to open similar funds in the prior year. In addition, consistent with the presence of scale and scope economies, we find that large families and families that have more experience in opening funds in the past are more likely to open new funds.

Abstract:
For a sample of 1163 mutual funds started over the period 1979-1992, we find that fund initiations are positively related to the level of assets invested in and the capital gains embedded in other funds with the same objective, the fund family's prior performance, the fraction of funds in the family in the low range of fees, and the decision by large families to open similar funds in the prior year. In addition, consistent with the presence of scale and scope economies, we find that large families and families that have more experience in opening funds in the past are more likely to open new funds.

Abstract:
We investigate stock price reactions to Internet related name changes in a market downturn. In contrast to the Internet boom period, during which there was a surge of dot.com additions, in the bust period, there is a dramatic reduction in the pace of dot.com additions accompanied by a rapid increase in dot.com name deletions. Following the Internet crash of mid-2000, investors react positively to name changes for firms that remove dot.com from their name. This dot.com deletion effect produces cumulative abnormal returns on the order of 64 percent for the sixty days surrounding the announcement day. Our results add support to a growing body of literature that documents that investors are potentially influenced by cosmetic effects and that managers rationally time corporate actions to take advantage of these biases.

Behavioral finance, market efficiency, dotcom firms

Abstract:
We investigate stock price reactions to Internet related name changes in a market downturn. In contrast to the Internet boom period, during which there was a surge of dot.com additions, in the bust period, there is a dramatic reduction in the pace of dot.com additions accompanied by a rapid increase in dot.com name deletions. Following the Internet "crash" of mid-2000, investors react positively to name changes for firms that remove dot.com from their name. This dot.com deletion effect produces cumulative abnormal returns on the order of 64 percent for the sixty days surrounding the announcement day. Our results add support to a growing body of literature that documents that investors are potentially influenced by cosmetic effects and that managers rationally time corporate actions to take advantage of these biases.

Behavioral Finance, Dotcom bubble, Managerial Timing, Gaming Behavior, Market Efficiency, Anomalies, Name Changes

Abstract:
We study 120 rights offerings by closed-end funds over 1988-1998. On average, rights offerings are announced when funds trade at a premium. This premium turns into a discount over the course of the offering. The premium decline is more severe when the increases in investment advisor's compensation are larger and when the fund uses affiliated broker-dealers to solicit subscriptions to the offer. A clinical analysis shows that rights offerings allow investment advisors to sidestep fee rebates and increase pecuniary benefits to affiliated entities. Overall, our results suggest the presence of significant conflicts of interests in rights offerings by closed-end funds.

Abstract:
We study 120 rights offerings by closed-end funds over 1988-1998. On average, rights offerings are announced when funds trade at a premium. This premium turns into a discount over the course of the offering. The premium decline is more severe when the increases in investment advisor's compensation are larger and when the fund uses affiliated broker-dealers to solicit subscriptions to the offer. A clinical analysis shows that rights offerings allow investment advisors to sidestep fee rebates and increase pecuniary benefits to affiliated entities. Overall, our results suggest the presence of significant conflicts of interests in rights offerings by closed-end funds.

Abstract:
In this paper, we study the determinants of underwriting syndicate structure and the impact of syndicate structure on completion speed, offer discount, and post-issue performance using 1,696 seasoned equity offerings (SEO) undertaken by U.S. firms between 1997 and 2005. We find that the deal size, the underlying market conditions, and the intended use of proceeds are the most significant determinants of syndicate structure. Syndicates are larger in hot markets even though the average deal size is smaller. Syndicate structure also varies across issues with different use of proceeds. Consistent with the certification hypothesis, larger and more prestigious syndicates are associated with lower discount. Moreover, firms, whose issues are underwritten by larger and more prestigious syndicates, experience higher post-issue three-day returns. Our results suggest that firms may benefit from employing larger and more reputable syndicates.

Underwriting syndicates, SEOs

Abstract:
In this paper, we examine the impact of NASD Rule 2711, NYSE Rule 472, and the Global Research Settlement on the recommendation performance of independent, affiliated, and unaffiliated analysts. We find that analysts from all three types of institutions issued fewer strong buys following these regulations designed to separate investment banking and equity research. Affiliated analysts were less likely to issue innovative recommendations. While downgrades became more prevalent following the regulations, they were significantly less informative. Independent research firms set up after the Global Research Settlement are of inferior quality; they issue more optimistic and less innovative recommendations that generate lower announcement period returns than independent firms existing prior to the Settlement. Our overall findings question whether investors will be better served via the shift in equity research to analysts at independent research firms.

Analyst Recommendations, Investment banks, Independent research institutions, Conflicts of interest, Global Settlement

Abstract:
Using a new database, we study fees charged by 46,580 mutual fund classes offered for sale in 18 countries, which account for about 86% of the world fund industry in 2002. We examine management fees, total expense ratios, and total shareholder costs (including load charges). Fees vary substantially across funds and from country to country. To explain these differences, we consider fund, sponsor, and national characteristics. Fees differ by investment objectives: larger funds and fund complexes charge lower fees; fees are higher for funds distributed in more countries and funds domiciled in certain offshore locations (especially when selling into countries levying higher taxes). Substantial cross-country differences persist even after controlling for these variables. These remaining differences can be explained by a variety of factors, the most robust of which is that fund fees are lower in countries with stronger investor protection.

G2, L11

Abstract:
Using a sample of all-star analysts who switch investment banks between 1988 and 1999, we examine (1) whether analyst behavior is influenced by investment banking relationships and (2) whether analyst behavior affects investment banking deal flow (debt and equity underwriting and corporate control transactions). Although the stock coverage decision is dependent on the investment banking relationship with the client firms, we find no evidence that analysts change their optimism or recommendation levels when joining a new firm. Investment banking deal flow is related to analyst reputation only for equity underwriting transactions. For debt underwriting and M&A transactions, after controlling for bank reputation, analyst reputation does not matter. There is no evidence that issuing optimistic earnings forecasts or recommendations affects investment banking deal flow.

All-star analyst, analyst coverage, market share, investment banking relationships, conflicts of interests

Abstract:
In this paper I examine the impact of mutual fund manager replacement on subsequent fund performance. Using a sample of 393 domestic equity and bond fund managers that were replaced over the 1979-1991 period, for the underperformers I document significant improvements in post-replacement performance relative to the past performance of the fund. On the other hand, the replacement of overperforming managers results in deterioration in post-replacement performance. I find evidence supporting the presence of strategic risk shifting in the fund portfolios prior to replacement. Furthermore, consistent with the notion of window dressing, I document that the level of portfolio turnover activity decreases significantly in the post-replacement period. Lastly, the replacement of poor performers is preceded by significant decreases in net new inflows in the fund.

Abstract:
For a sample of 1163 mutual funds started over the period 1979-1992, we find that fund initiations are positively related to the level of assets invested in and the capital gains embedded in other funds with the same objective, the fund family's prior performance, the fraction of funds in the family in the low range of fees, and the decision by large families to open similar funds in the prior year. In addition, consistent with the presence of scale and scope economies in funds openings, we find that large families and families that have more experience in opening funds in the past are more likely to open new funds.

Abstract:
Jensen (1986), among others, suggests that executives may increase firm size beyond the optimum because executive compensation relates positively to firm size. We test this hypothesis by (i) analyzing changes in executive compensation around large acquisitions, and (ii) by comparing executive compensation of firms that undertake large acquisitions to a sample of industry and size matched (non-acquiring) firms. For firms undertaking large acquisitions we find an increase in cash compensation, but no increase in total compensation, in the post acquisition years. This result may be partially attributable to the presence of a positive "compensation-size" relation for the acquiror, but not for the control sample, in the pre- acquisition years. Overall, our results provide partial evidence that executive compensation considerations may have induced managers to undertake large acquisitions in the 1980s.

Abstract:
To examine the role of executive compensation in corporate acquisition decisions, we compare the compensation of top executives in two groups of firms: firms undertaking large acquisitions and a control sample of non-acquirors. Before the acquisition, we find a positive relation between firm size and compensation for executives of acquirors. However, we do not find such a relation for non-acquirors. This result suggests an ex ante expectation that larger firm size for the acquirors will result in larger managerial compensation. Ex post, however, the increase in total compensation is not attributable to the size increase resulting from the acquisition. In separating good from bad acqusitions, we find that good acquisitions increase compensation. However, bad acquisitions do not have a material impact on executive compensation.

Abstract:
We study 67 rights offerings by closed-end funds over 1988-1994 and gauge their impact on the fund's shareholders and managers. We find that funds conduct rights offerings while they are trading at a premium, reverts to a discount after the offering. Theories of asymmetric information about assets-in-place, growth and investment opportunities as well as downward sloping demand curves have little explanatory power in explaining the premium decline. Our proxies for managerial opportunism suggest that premium declines are related to agency problems between investment advisors and shareholders. Indeed, rights offerings result in a substantial increase in investment advisory fees.