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Size does not matter: Diseconomies of scale in the mutual fund industry revisited

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  • Phillips, Blake
  • Pukthuanthong, Kuntara
  • Rau, P. Raghavendra

Abstract

The academic literature has found mixed evidence that fund size is negatively related to performance. One reason for the lack of consensus may be that the fund size and performance relation is endogenous. In this paper, we identify a set of instrumental variables that influence fund size but are unrelated to expected fund performance. Using this specification, we show that fund size does not appear to affect fund performance.

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  • Phillips, Blake & Pukthuanthong, Kuntara & Rau, P. Raghavendra, 2018. "Size does not matter: Diseconomies of scale in the mutual fund industry revisited," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 357-365.
    • Handle: RePEc:eee:jbfina:v:88:y:2018:i:c:p:357-365
    DOI: 10.1016/j.jbankfin.2017.12.005
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    Cited by:

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    2. David Hunter & Zhen Sun & Karen Benson, 2020. "The Exclusive Role of Centralized Fund Family Management," Journal of Financial Services Research, Springer;Western Finance Association, vol. 58(2), pages 199-236, December.
    3. Samar Farid & Hayam Wahba, 2022. "The effect of fund size on mutual funds performance in Egypt," Future Business Journal, Springer, vol. 8(1), pages 1-11, December.
    4. Sofia Fonseca & Maria João Guedes & Vítor Conceição Gonçalves, 2022. "Profitability and size of newly established firms," International Entrepreneurship and Management Journal, Springer, vol. 18(2), pages 957-974, June.
    5. Angelidis, Timotheos & Babalos, Vassilios & Fessas, Michalis, 2021. "The economic gain of being small in the mutual fund industry: U.S. and international evidence," International Review of Financial Analysis, Elsevier, vol. 77(C).
    6. Richard Evans & Javier Gil‐Bazo & Marc Lipson, 2024. "Mutual fund performance and manager assets: The negative effect of outside holdings," Financial Management, Financial Management Association International, vol. 53(1), pages 3-29, March.
    7. De Gennaro Aquino, Luca & Sornette, Didier & Strub, Moris S., 2023. "Portfolio selection with exploration of new investment assets," European Journal of Operational Research, Elsevier, vol. 310(2), pages 773-792.
    8. Lu, Shuai & Li, Shouwei & Zhou, Wei & Yang, Wenke, 2022. "Network herding of energy funds in the post-Carbon-Peak Policy era: Does it benefit profitability and stability?," Energy Economics, Elsevier, vol. 109(C).
    9. Neupane, Suman & Thapa, Chandra & Vithanage, Kulunu, 2023. "Context‐specific experience and institutional investors’ performance," Journal of Banking & Finance, Elsevier, vol. 149(C).
    10. Yamani, Ehab, 2023. "The informational role of fund flow in the profitable predictability of mutual funds," Finance Research Letters, Elsevier, vol. 51(C).
    11. Kooli, Maher & Zhang, Min, 2022. "Not only skill but also scale: Evidence from the hedge funds industry," International Review of Financial Analysis, Elsevier, vol. 83(C).
    12. Timothy B. Riley, 2021. "Portfolios of actively managed mutual funds," The Financial Review, Eastern Finance Association, vol. 56(2), pages 205-230, May.
    13. Giuseppe Galloppo, 2021. "Size," Springer Books, in: Asset Allocation Strategies for Mutual Funds, chapter 0, pages 151-190, Springer.
    14. Jiang, George J. & Zaynutdinova, Gulnara R. & Zhang, Huacheng, 2021. "Stock-selection timing," Journal of Banking & Finance, Elsevier, vol. 125(C).
    15. Rakowski, David & Yamani, Ehab, 2021. "Endogeneity in the mutual fund flow–performance relationship: An instrumental variables solution," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 247-271.

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