Competition in Financial Services: Evidence from British Mutual Funds

44 Pages Posted: 17 Jan 2010 Last revised: 23 Nov 2012

A. Joseph Warburton

Syracuse University - College of Law; Syracuse University - Whitman School of Management

Date Written: February 1, 2012

Abstract

This paper explores the effects of competition on risk-taking behavior and firm performance within the financial services industry. It does so by exploiting a regulatory change that allowed new players to enter the British mutual fund industry. Exploiting this regulatory shock, we trace non-trivial linkages among industry competition, risk taking, and performance. Greater competition followed the regulatory liberalization, leading to a significant increase in risk-taking behavior of funds. Competition generated performance efficiencies, forcing underperforming funds to exit and halting earlier value-destruction. Competition, however, did not produce tangible cost savings for consumers of investment services.

Keywords: Competition, Deregulation, Entry Barrier, Financial Services, Mutual Funds, Risk, Organizational Form

JEL Classification: G01, G18, G20, G23, G28, G38, L16, D21, K23

Suggested Citation

Warburton, A. Joseph, Competition in Financial Services: Evidence from British Mutual Funds (February 1, 2012). Empirical Legal Studies Conferences, 6th Annual Conference on Empirical Legal Studies, November 4-5, 2011 . Available at SSRN: https://ssrn.com/abstract=1537280 or http://dx.doi.org/10.2139/ssrn.1537280

A. Joseph Warburton (Contact Author)

Syracuse University - College of Law ( email )

Syracuse, NY 13244-1030
United States

Syracuse University - Whitman School of Management ( email )

Syracuse, NY
United States

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