Economic Consequences of Mutual Fund Advisory Misconduct

59 Pages Posted: 13 Nov 2017 Last revised: 30 Sep 2018

See all articles by Kai Wu

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance

Date Written: September 21, 2018

Abstract

I evaluate the economic consequences of advisory misconduct using the publicly disclosed regulatory actions of mutual fund advisors. From a broad set of misconduct events from 2000-2013, I find a 5% reduction in fund flows to malfeasant advisors in one year following the misconduct. Further analysis using the 2001 SEC electronic filing mandate corroborates these results. Mutual fund companies raise marketing expenditures, reduce contractual incentives, and relax investment restrictions subsequently to mitigate the negative impact on flows. Moreover, advisory misconduct adversely affects advising relationships. My findings highlight the significant impact of misconduct on fund flows and advisory contracting in the mutual fund industry.

Keywords: Mutual Funds, Advisory Misconduct, Economic Consequences

JEL Classification: G02, G23, G28

Suggested Citation

Wu, Kai, Economic Consequences of Mutual Fund Advisory Misconduct (September 21, 2018). Asian Finance Association (AsianFA) 2018 Conference. Available at SSRN: https://ssrn.com/abstract=3061419 or http://dx.doi.org/10.2139/ssrn.3061419

Kai Wu (Contact Author)

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

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