IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v71y2025i1p35-58.html
   My bibliography  Save this article

Distortions Caused by Lending Fee Retention

Author

Listed:
  • Travis L. Johnson

    (McCombs School of Business, The University of Texas at Austin, Austin, Texas 78712)

  • Gregory Weitzner

    (Desautels Faculty of Management, McGill University, Montreal, Quebec H3A1G5, Canada)

Abstract

Some mutual funds retain a fraction of securities lending income by employing in-house lending agents. In a model with heterogeneous investors and endogenous delegation to mutual funds, we show that a subset of funds optimally engages in lending fee retention and as a result, overweights high lending fee stocks that endogenously underperform. We find empirical evidence consistent with our model’s predictions; active mutual funds we identify as fee retainers invest more in high-fee stocks and underperform relative to both nonretaining and nonlending funds. We also show that fee retention helps explain the negative relation between lending fees and future fee-inclusive stock returns.

Suggested Citation

  • Travis L. Johnson & Gregory Weitzner, 2025. "Distortions Caused by Lending Fee Retention," Management Science, INFORMS, vol. 71(1), pages 35-58, January.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:1:p:35-58
    DOI: 10.1287/mnsc.2021.01390
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2021.01390
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2021.01390?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:71:y:2025:i:1:p:35-58. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.