Does Size Matter? Scale and Scope Economies of German Investment Management Companies

Abstract

Standard measures of economies of scale and scope show that size does matter for German investment management companies. The average investment management company faces an increase in costs of 0.71% for a 1% increase in assets under management. Small to mid-sized companies in our example exhibit statistically significant scale economies. These economies of scale show a size trend. Furthermore, there is empirical evidence of economies of scope between retail and institutional funds, but the cost savings are greater for large investment management companies. Economies of scope also exhibit a size trend, i.e. larger companies show fewer scope economies.

Keywords: economies of scale, economies of scope, fixed-effects model, investment management companies, mutual funds

JEL Classification: C23, D24, G23, L25