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Legality and the Spread of Voluntary Investor Protection

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  • Douglas Cumming
  • Gaël Imad’Eddine
  • Armin Schwienbacher

Abstract

We examine the spread of Undertakings for Collective Investment in Transferable Securities (UCITS) funds around the world and consider whether such mutual funds, which voluntarily adopt higher standards of investor protection, expand their operations to other countries with higher or lower investor protection regimes. The data indicate equity funds spread to countries with better anti-director rights and bond funds spread to countries with better creditor rights; however, either type of spread is uncorrelated with and unexplained by enforcement standards. The data therefore indicate that the loss of insider managerial benefits from UCITS constraints is smaller in countries where legal standards are higher, and this mechanism is a primary determinant of the spread of voluntary protection mechanisms among mutual funds. This central finding holds over a wide range of robustness checks and the use of treatment-effect models that account for self selection.

Suggested Citation

  • Douglas Cumming & Gaël Imad’Eddine & Armin Schwienbacher, 2013. "Legality and the Spread of Voluntary Investor Protection," Finance, Presses universitaires de Grenoble, vol. 34(3), pages 31-65.
    • Handle: RePEc:cai:finpug:fina_343_0031
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    Cited by:

    1. Cumming, Douglas & Schwienbacher, Armin & Zhan, Feng, 2015. "The scope of international mutual fund outsourcing: Fees, performance and risks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 38(C), pages 185-199.
    2. Lisa De Simone & Rebecca Lester & Kevin Markle, 2020. "Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)," Journal of Accounting Research, Wiley Blackwell, vol. 58(1), pages 105-153, March.

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