Are Mutual Fund Fees Excessive?

53 Pages Posted: 14 Jul 2009 Last revised: 21 Oct 2014

See all articles by John C. Adams

John C. Adams

University of Texas at Arlington

Sattar Mansi

Virginia Polytechnic Institute & State University

Takeshi Nishikawa

University of Colorado at Denver

Date Written: March 27, 2012

Abstract

There is a long running debate over whether competition in the mutual fund industry limits the ability of investment advisors to charge fees that are disproportionate to the services they provide. We posit that disproportionately high fees are prevalent in funds with multiple share classes and those with weak governance structures. Using a comprehensive sample of index mutual funds for the from 1998 to 2007, we find that internal governance mechanisms matter primarily for funds with relatively small share classes where investors often face increased search costs and/or restricted access to competitive mutual funds. Additionally, we find that funds managed by publicly held sponsors are associated with disproportionately higher fee spreads (about 28 basis points). The results are robust to the inclusion of board characteristics, share class structure, and investment objectives. Overall, our findings suggest that competition and agency considerations are important determinants in the pricing of mutual funds.

Keywords: Mutual Fund Fees, Board Structure, Gartenberg Standard, Excessive Fees, Jones v Harris Associates, Supreme Court

JEL Classification: G20, G32, G34, K22, L22

Suggested Citation

Adams, John C. and Mansi, Sattar and Nishikawa, Takeshi, Are Mutual Fund Fees Excessive? (March 27, 2012). Journal of Banking and Finance, Vol. 36, No. 8, 2012. Available at SSRN: https://ssrn.com/abstract=1433517 or http://dx.doi.org/10.2139/ssrn.1433517

John C. Adams

University of Texas at Arlington ( email )

Box 19449 UTA
Arlington, TX 76019
United States
904-476-2946 (Phone)

Sattar Mansi (Contact Author)

Virginia Polytechnic Institute & State University ( email )

Takeshi Nishikawa

University of Colorado at Denver ( email )

Box 173364
1250 14th Street
Denver, CO 80217
United States

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