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Disclosure and Agency Conflict in Delegated Investment Management: Evidence from Mutual Fund Commission Bundling

48 Pages Posted: 26 Mar 2008 Last revised: 15 May 2011

Roger M. Edelen

University of California, Davis - Graduate School of Management

Richard B. Evans

University of Virginia - Darden School of Business

Gregory B. Kadlec

Virginia Polytechnic Institute & State University - Pamplin College of Business

Date Written: February 1, 2011

Abstract

This study provides empirical evidence on the role of disclosure in resolving agency conflicts in delegated investment management. For certain expenditures fund managers have alternative means of payment which differ greatly in their opacity: payments can be expensed (relatively transparent); or bundled with brokerage commissions (relatively opaque). We find that the return impact of opaque payments is significantly more negative than that of transparent payments. Moreover, we find a differential flow reaction that confirms the opacity of commission bundling. Collectively, our results demonstrate the importance of transparency in addressing agency costs of delegated investment management.

Keywords: Agency Conflict, Mutual Fund; Performance; Brokerage Commissions; Expenses.

JEL Classification: G24, G29

Suggested Citation

Edelen, Roger M. and Evans, Richard B. and Kadlec, Gregory B., Disclosure and Agency Conflict in Delegated Investment Management: Evidence from Mutual Fund Commission Bundling (February 1, 2011). AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1108768 or http://dx.doi.org/10.2139/ssrn.1108768

Roger M. Edelen (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

Richard B. Evans

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4030 (Phone)
434-243-7680 (Fax)

HOME PAGE: http://faculty.darden.virginia.edu/evansr/

Gregory B. Kadlec

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-4316 (Phone)

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