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 signicant scale economies. These economies of scale show a size trend, i.e. larger companies exhibit less scale economies. Furthermore, there is empirical evidence of economies of scope between retail and institutional funds, but the cost savings by oering these products jointly are negligible in economic terms. In contrast, there is empirical evidence of economically meaningful scope economies between dierent types of retail security funds which are statistically signicant for large investment management companies. Nevertheless, economies of scope on average exhibit a size trend, i.e. larger companies on average feature less scope economies.

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

JEL Classification: C23, D24, G23, L25