Commonalities in Investment Strategy and the Determinants of Performance in Mutual Fund Mergers

37 Pages Posted: 4 Oct 2012 Last revised: 15 Jul 2014

Ethan Namvar

University of California, Berkeley - Haas School of Business; Columbia Business School

Blake Phillips

University of Waterloo

Date Written: September 25, 2012

Abstract

This paper examines the determinants of cross-sectional variation in post-merger mutual fund performance. Mergers between funds with similar management objectives, as reflected by average portfolio book-to-market ratio, price-earnings ratio, beta and market capitalization values, outperform mergers between funds with dissimilar strategies. This superior performance transcends lower portfolio rebalancing costs which might be realized between merging funds which hold more assets in common. These results suggest that mutual fund mergers create collaborative benefits between funds with similar strategies. We also examine if fund governance structures influence the fund pairing process, testing if stronger fund oversight mitigates pairing mismatches. We find that less independent boards of trustees and boards with higher compensation are related to greater strategic mismatches between funds. These results suggest that more entrenched boards are more tolerant of fund mismatches which benefit the investment company, yet are not in investor’s best interests.

Keywords: Mutual fund, Mutual fund merger, Mutual fund governance

JEL Classification: G11, G14, G23, G32

Suggested Citation

Namvar, Ethan and Phillips, Blake, Commonalities in Investment Strategy and the Determinants of Performance in Mutual Fund Mergers (September 25, 2012). Journal of Banking & Finance, Volume 37, Issue 2, February 2013, Pages 625-635. Available at SSRN: https://ssrn.com/abstract=2155662

Ethan Namvar

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-7989 (Phone)

HOME PAGE: http://haas.berkeley.edu

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Blake Phillips (Contact Author)

University of Waterloo ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada

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