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Expense Shifting: An Empirical Study of Agency Costs in the Mutual Fund Industry

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Author Info
Nicolaj Siggelkow
Abstract

Using a dataset comprising almost all equity and bond funds in existence in 1996, we find that fund providers shift advertising and distribution expenses via so-called 12b-1 fees onto fund shareholders. It is further shown that bonds funds with 12b-1 fees are more risky, while having similar returns, than bond funds without 12b-1 fees. Lastly, we find that fund providers shift part of their research expenses onto fund shareholders by generating soft dollars (rebates in form of research services provided by brokers in return for excess commissions paid by fund providers) and not reducing explicit fees.

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Publisher Info
Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 99-09.

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Date of creation: Jan 1999
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Handle: RePEc:wop:pennin:99-09

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Related research
Keywords: Mutual Funds; Agency Costs; 12b-1 Fees; Soft Dollars;

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Find related papers by JEL classification:
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March. [Downloadable!] (restricted)
  2. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," Journal of Business, University of Chicago Press, vol. 62(3), pages 393-416, July. [Downloadable!] (restricted)
    Other versions:
  3. Blake, Christopher R & Elton, Edwin J & Gruber, Martin J, 1993. "The Performance of Bond Mutual Funds," Journal of Business, University of Chicago Press, vol. 66(3), pages 370-403, July.
  4. Khorana, Ajay, 1996. "Top management turnover An empirical investigation of mutual fund managers," Journal of Financial Economics, Elsevier, vol. 40(3), pages 403-427, March. [Downloadable!] (restricted)
  5. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1990. " Do Managerial Objectives Drive Bad Acquisitions?," Journal of Finance, American Finance Association, vol. 45(1), pages 31-48, March. [Downloadable!] (restricted)
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  6. Dermine, Jean & Roller, Lars-Hendrik, 1992. "Economies of scale and scope in French mutual funds," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 83-93, March. [Downloadable!] (restricted)
  7. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "The Persistence of Risk-Adjusted Mutual Fund Performance," Journal of Business, University of Chicago Press, vol. 69(2), pages 133-57, April. [Downloadable!] (restricted)
  8. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October. [Downloadable!] (restricted)
  9. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
  10. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring. [Downloadable!] (restricted)
  11. Jarrell, Gregg A, 1984. "Change at the Exchange: The Causes and Effects of Deregulation," Journal of Law & Economics, University of Chicago Press, vol. 27(2), pages 273-312, October.
  12. Chordia, Tarun, 1996. "The structure of mutual fund charges," Journal of Financial Economics, Elsevier, vol. 41(1), pages 3-39, May. [Downloadable!] (restricted)
  13. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
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  14. Brown, Stephen J & Goetzmann, William N, 1995. " Performance Persistence," Journal of Finance, American Finance Association, vol. 50(2), pages 679-98, June. [Downloadable!] (restricted)
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  15. Larry Lang & Annette Poulsen & Rene M. Stulz, 1994. "Asset Sales, Firm Performance, and the Agency Costs of Managerial Discretion," NBER Working Papers 4654, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer. [Downloadable!] (restricted)
  17. Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June. [Downloadable!] (restricted)
  18. Chan, Louis K. C. & Lakonishok, Josef, 1993. "Institutional trades and intraday stock price behavior," Journal of Financial Economics, Elsevier, vol. 33(2), pages 173-199, April. [Downloadable!] (restricted)
  19. Ferris, Stephen P & Chance, Don M, 1987. " The Effect of 12b-1 Plans on Mutual Fund Expense Ratios: A Note," Journal of Finance, American Finance Association, vol. 42(4), pages 1077-82, September. [Downloadable!] (restricted)
  20. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Anolli, Mario & Del Giudice, Alfonso, 2008. "Italian Open End Mutual Fund Costs," MPRA Paper 8111, University Library of Munich, Germany. [Downloadable!]
  2. Javier Gil-Bazo, 2001. "Portfolio Management Fees: Assets Or Profits Based Compensation?," Business Economics Working Papers wb012207, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
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