An Empirical Analysis of Fund Regulation and Scope of Distribution of European Investment Funds

Abstract:     
This paper examines the impact of the 2001 UCITS III Directive on international distributions of European investment funds from 2002-2008. We analyze several dimensions of the notification decision: (1) whether the fund is distributed cross-border; (2) the number of countries where funds are notified for distribution; and (3) the population size implied by the notification list. Although UCITS III facilitated international distributions, it did so with costs that disadvantaged smaller funds, and did not have effective procedures to facilitate fund mergers. Consistent with these regulatory impediments, our comprehensive dataset on European investment funds shows that larger fund promoters and funds domiciled in smaller countries have much wider distributions, but merged funds have a narrower scope of international notifications. Also, we document that the international scope of notifications is concave in that fewer new countries are notified over time. As well, we empirically show an increase in the number of fund promoters that distribute UCITS funds outside the European Union, notably in Asia, which can be attributable to the superior investor protection of UCITS regulation. We find that notifications in Asian countries are mostly done by non-European promoters (primarily US promoters).

Number of Pages in PDF File: 37

Keywords: Mutual funds industry, International distribution, UCITS, Law and finance

JEL Classification: G23, G15, G18, K22

working papers series