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Is There Investment Value in the Soft-Dollar Arrangement? Evidence from Mutual Funds

Author

Listed:
  • Sinan Gokkaya
  • Xi Liu
  • Veronika Krepely
  • Fei Xie
  • Jinfan Zhang
  • Lauren Cohen

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 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 on whether mutual funds obtain any investment value from access to analysts through the soft-dollar arrangement.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Sinan Gokkaya & Xi Liu & Veronika Krepely & Fei Xie & Jinfan Zhang & Lauren Cohen, 2023. "Is There Investment Value in the Soft-Dollar Arrangement? Evidence from Mutual Funds," The Review of Financial Studies, Society for Financial Studies, vol. 36(8), pages 3122-3162.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:8:p:3122-3162.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad010
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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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