Legality and the Spread of Voluntary Investor Protection

Abstract

We examine the spread of UCITS funds around the world, and consider whether such mutual funds that adopt higher standards of voluntary investor protection expand their operations to other countries with higher or lower investor protection regimes. The data indicate equity funds spread to countries with better antidirector rights and bond funds to spread to countries with better creditor rights; however, spread of either type is uncorrelated with and not explained by enforcement standards. The data therefore indicate that the loss of insider managerial benefits from UCITS constraints is smaller in countries where legal standards are higher, and this mechanism is a primary determinant of the spread of voluntary protection mechanisms among mutual funds. This central finding holds over a wide range of robustness checks.

Keywords: Mutual funds, Investor protection, International distribution, Law and finance

JEL Classification: G23, G15, G18, K22