Gains to Mutual Fund Sponsors Offering Multiple Share Class Funds

Posted: 5 Jan 2001

See all articles by Vance P. Lesseig

Vance P. Lesseig

Texas State University--San Marcos

D. Michael Long

University of Tennessee, Chattanooga - Department of Accounting

Thomas I. Smythe

Furman University

Abstract

While the number of mutual funds has grown during the 1990s, much of the growth is attributable to the introduction of multiple share class (MS) funds. Proponents argue that the MS structure leads to cost savings, which can be passed on to investors as lower expenses. However, if the structure lowers costs, sponsors are likely to profit from it. Though investors are concerned about the base expense ratio, the sum of administrative and management fees, fund sponsors generate profits from the management fees. As such, they would prefer to increase the management fee if they can simultaneously lower administrative fees. Our results indicate that MS fund investors pay lower administrative fees, but management fees are approximately 7 basis points higher than single-class funds. Overall, base expense ratios are higher than for single-class funds, suggesting that fund sponsors capture the cost benefits the MS structure provides. Our results are robust to different model specifications and different estimation techniques.

JEL Classification: G18, G20, G23

Suggested Citation

Lesseig, Vance P. and Long, D. Michael and Smythe, Thomas I., Gains to Mutual Fund Sponsors Offering Multiple Share Class Funds. Journal of Financial Research. Available at SSRN: https://ssrn.com/abstract=251671

Vance P. Lesseig

Texas State University--San Marcos ( email )

601 University Drive
San Marcos, TX 78666-4615
United States

D. Michael Long

University of Tennessee, Chattanooga - Department of Accounting ( email )

615 McCallie Avenue
306 Fletcher Hall
Chattanooga, TN 37403-2598
United States
423-785-2112 (Phone)
423-755-5255 (Fax)

Thomas I. Smythe (Contact Author)

Furman University ( email )

Greenville, SC
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
879
PlumX Metrics