Mutual Funds’ Exits, Financial Crisis and Darwin

49 Pages Posted: 15 Aug 2019 Last revised: 9 Sep 2020

See all articles by Anna (Ania) Zalewska

Anna (Ania) Zalewska

University of Bath - Centre for Governance, Regulation and Industrial Strategy; School of Management

Yue Zhang

International School of Business&Finance (ISBF),Sun Yat-sen University (SYSU)

Date Written: September 1, 2020

Abstract

It is recognized in the literature that there is a negative relationship between fund performance and fund exit. This paper analyses the performance of 6,600 U.S. mutual funds that exited the market in the 2000 – 2014 period and nearly twice as many U.S. mutual funds that remained operational, to provide evidence on whether the negative exit – performance relationship existed during the 2008 financial crisis. We confirm the general relationship but show that, in contrast to all the other periods, there was no statistically significant exit – performance relationship during the financial crisis. We also show that the impact of expenses and loads on fund exit increased during the crisis. This is consistent with our argument that when some active investors leave the market, the passive ones become important to fund–families, albeit the investors may lose out as a result. We also show that the mergers that occurred in the years following the financial crisis resulted in statistically significantly worse post–merger performance of both the acquirers and of the targets in comparison with their pre–merger performance.

Keywords: mutual funds, performance, liquidations, mergers, exit, financial crisis, agency conflict

JEL Classification: G23, G11, G01

Suggested Citation

Zalewska, Anna and Zhang, Yue, Mutual Funds’ Exits, Financial Crisis and Darwin (September 1, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3436996 or http://dx.doi.org/10.2139/ssrn.3436996

Anna Zalewska (Contact Author)

University of Bath - Centre for Governance, Regulation and Industrial Strategy; School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
+44 0 1225 384354 (Phone)
+44 0 1226 384354 (Fax)

Yue Zhang

International School of Business&Finance (ISBF),Sun Yat-sen University (SYSU) ( email )

Zhuhai Campus, SYSU
Zhuhai, Guangdong 519082
China

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