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Economies of Scale in Mutual Fund Administration

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  • Latzko, David A
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    Abstract

    Since many mutual fund expenses are fixed costs, asset growth should reduce the ratio of fund expenses to average net assets. A translog cost function is estimated for a sample of 2,610 funds to evaluate the existence and extent of economies of scale in mutual fund administration. The elasticity of fund expenses with respect to fund assets is significantly less than one, indicating there are economies of scale in mutual fund administration. Average costs diminish over the full range of fund assets; however, the rapid decrease in average costs is exhausted by about $3.5 billion in fund assets.

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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 22 (1999)
    Issue (Month): 3 (Fall)
    Pages: 331-39

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    Handle: RePEc:bla:jfnres:v:22:y:1999:i:3:p:331-39

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0270-2592
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    Web page: http://www.southwesternfinance.org/
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    Cited by:
    1. Lang, Gunnar & Köhler, Matthias, 2011. "How does the domiciliation decision affect mutual fund fees?," ZEW Discussion Papers 11-085, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Dean Amel & Colleen Barnes & Fabio Panetta & Carmelo Salleo, 2002. "Consolidation and efficiency in the financial sector: a review of the international evidence," Temi di discussione (Economic working papers) 464, Bank of Italy, Economic Research and International Relations Area.
    3. Geranio, Manuela & Zanotti, Giovanna, 2005. "Can mutual funds characteristics explain fees?," Journal of Multinational Financial Management, Elsevier, vol. 15(4-5), pages 354-376, October.
    4. Cashman, George D., 2010. "Pay-performance sensitivity and firm size: Insights from the mutual fund industry," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 400-412, September.
    5. Iannotta, Giuliano & Navone, Marco, 2012. "The cross-section of mutual fund fee dispersion," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 846-856.
    6. Javier Gil-Bazo & Pablo Ruiz-Verdu, 2006. "Yet Another Puzzle? The Relation Between Price And Performance In The Mutual Fund Industry," Business Economics Working Papers wb066519, Universidad Carlos III, Departamento de Economía de la Empresa.
    7. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
    8. John Banko & Scott Beyer & Richard Dowen, 2010. "Economies of scope and scale in the mutual-fund industry," Managerial Finance, Emerald Group Publishing, vol. 36(4), pages 322-336, April.
    9. Tang, Ke & Wang, Wenjun & Xu, Rong, 2012. "Size and performance of Chinese mutual funds: The role of economy of scale and liquidity," Pacific-Basin Finance Journal, Elsevier, vol. 20(2), pages 228-246.
    10. Prather, Laurie & Bertin, William J. & Henker, Thomas, 2004. "Mutual fund characteristics, managerial attributes, and fund performance," Review of Financial Economics, Elsevier, vol. 13(4), pages 305-326.
    11. Helen Higgs & Andrew C. Worthington, 2010. "Economies of Scale and Scope in Australian Superannuation Funds," Discussion Papers in Finance finance:201015, Griffith University, Department of Accounting, Finance and Economics.

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