Is There Investment Value in Soft Dollar Arrangements? Evidence from Mutual Funds

47 Pages Posted: 2 Aug 2018 Last revised: 7 Aug 2021

See all articles by Sinan Gokkaya

Sinan Gokkaya

Department of Finance, Ohio University

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration

Veronika Krepely Pool

Vanderbilt University - Finance

Fei Xie

University of Delaware - Lerner College of Business and Economics; European Corporate Governance Institute (ECGI)

Jinfan Zhang

Chinese University of Hong Kong (Shenzhen)

Date Written: April 30, 2021

Abstract

Combining novel data on analyst employment history and mutual fund commission payments, we show that client funds generate higher returns on stocks for which they have access to research by industry expert analysts. The outperformance is greater when funds are more important clients, and it cannot be attributed to tipping. Client funds place modestly higher weights on stocks covered by industry expert analysts and allocate more commissions to brokers providing such coverage. For identification, we exploit exogenous analyst coverage disruptions. Our findings contribute to the debate concerning the unbundling of commissions under MiFID II and its implications for the U.S.

Keywords: Soft-dollar arrangements, broker commissions, mutual funds, sell-side research, industry knowledge, analyst coverage terminations

JEL Classification: G11, G14, G17, G20

Suggested Citation

Gokkaya, Sinan and Liu, Xi and Pool, Veronika Krepely and Xie, Fei and Zhang, Jinfan, Is There Investment Value in Soft Dollar Arrangements? Evidence from Mutual Funds (April 30, 2021). 29th Annual Conference on Financial Economics & Accounting 2018, Available at SSRN: https://ssrn.com/abstract=3225133 or http://dx.doi.org/10.2139/ssrn.3225133

Sinan Gokkaya

Department of Finance, Ohio University ( email )

207 Muck College of Business
Athens, OH 45701
United States

HOME PAGE: http://business.ohio.edu/about/faculty-staff/gokkaya-sinan/

Xi Liu

Miami University of Ohio - Richard T. Farmer School of Business Administration ( email )

Oxford, OH 45056
United States

Veronika Krepely Pool (Contact Author)

Vanderbilt University - Finance ( email )

United States
615-343-0277 (Phone)

Fei Xie

University of Delaware - Lerner College of Business and Economics ( email )

42 Amstel Ave
Newark, DE 19716
United States
(302) 8313811 (Phone)

HOME PAGE: http://sites.google.com/site/feisresearch/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jinfan Zhang

Chinese University of Hong Kong (Shenzhen) ( email )

Shenzhen
China

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