IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v37y2013i12p4834-4849.html
   My bibliography  Save this article

Asset sales in the mutual fund industry: Who gains?

Author

Listed:
  • Chen, Fan
  • Sanger, Gary C.
  • Slovin, Myron B.

Abstract

We analyze gains from intercorporate sales of mutual fund subsidiaries, using mandated SEC disclosures to assess the performance of mutual funds transferred by these transactions. Sellers are financial conglomerates (banks) using equity-based deals to transfer poorly performing funds to highly focused asset management companies. The transferred funds experience significant improvements in risk-adjusted returns, efficiency, and asset growth. These improvements are closely correlated with the gains in wealth to buyers and sellers at deal announcements, indicating the market efficiently capitalizes expected performance improvements. Our results provide evidence that these transactions transfer assets to acquirers better able to manage them, generating gains for fund holders and buyer and seller shareholders.

Suggested Citation

  • Chen, Fan & Sanger, Gary C. & Slovin, Myron B., 2013. "Asset sales in the mutual fund industry: Who gains?," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4834-4849.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:4834-4849
    DOI: 10.1016/j.jbankfin.2013.08.019
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426613003506
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2013.08.019?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Benjamin Golez & José M. Marín, 2010. "Price support in the stock market," Working Papers 2010-16, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
    2. Blake, Christopher R & Elton, Edwin J & Gruber, Martin J, 1993. "The Performance of Bond Mutual Funds," The Journal of Business, University of Chicago Press, vol. 66(3), pages 370-403, July.
    3. Stein, Jeremy C, 1997. "Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-133, March.
    4. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
    5. Thompson, Samuel B., 2011. "Simple formulas for standard errors that cluster by both firm and time," Journal of Financial Economics, Elsevier, vol. 99(1), pages 1-10, January.
    6. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    7. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    8. Yishay Yafeh & Oved Yosha, 2003. "Large Shareholders and Banks: Who Monitors and How?," Economic Journal, Royal Economic Society, vol. 113(484), pages 128-146, January.
    9. Qi Chen & Itay Goldstein & Wei Jiang, 2008. "Directors' Ownership in the U.S. Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 63(6), pages 2629-2677, December.
    10. Ulrich Hege & Stefano Lovo & Myron B. Slovin & Marie E. Sushka, 2009. "Equity and Cash in Intercorporate Asset Sales: Theory and Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 681-714, February.
    11. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    12. Narayanan Jayaraman & Ajay Khorana & Edward Nelling, 2002. "An Analysis of the Determinants and Shareholder Wealth Effects of Mutual Fund Mergers," Journal of Finance, American Finance Association, vol. 57(3), pages 1521-1551, June.
    13. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    14. Jarrell, Gregg A. & Poulsen, Annette B., 1987. "Shark repellents and stock prices : The effects of antitakeover amendments since 1980," Journal of Financial Economics, Elsevier, vol. 19(1), pages 127-168, September.
    15. Massa, Massimo & Rehman, Zahid, 2008. "Information flows within financial conglomerates: Evidence from the banks-mutual funds relation," Journal of Financial Economics, Elsevier, vol. 89(2), pages 288-306, August.
    16. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    17. Rosenfeld, James D, 1984. "Additional Evidence on the Relation between Divestiture Announcements and Shareholder Wealth," Journal of Finance, American Finance Association, vol. 39(5), pages 1437-1448, December.
    18. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
    19. Tarun Ramadorai, 2012. "The Secondary Market for Hedge Funds and the Closed Hedge Fund Premium," Journal of Finance, American Finance Association, vol. 67(2), pages 479-512, April.
    20. Slovin, Myron B & Sushka, Marie E, 1993. "Ownership Concentration, Corporate Control Activity, and Firm Value: Evidence from the Death of Inside Blockholders," Journal of Finance, American Finance Association, vol. 48(4), pages 1293-1321, September.
    21. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    22. Allen, Franklin & Santomero, Anthony M., 2001. "What do financial intermediaries do?," Journal of Banking & Finance, Elsevier, vol. 25(2), pages 271-294, February.
    23. Jain, Prem C, 1985. "The Effect of Voluntary Sell-off Announcements on Shareholder Wealth," Journal of Finance, American Finance Association, vol. 40(1), pages 209-224, March.
    24. Lamont, Owen A. & Polk, Christopher, 2002. "Does diversification destroy value? Evidence from the industry shocks," Journal of Financial Economics, Elsevier, vol. 63(1), pages 51-77, January.
    25. Ofek, Eli, 1993. "Capital structure and firm response to poor performance: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 34(1), pages 3-30, August.
    26. Vojislav Maksimovic & Gordon Phillips, 2001. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?," Journal of Finance, American Finance Association, vol. 56(6), pages 2019-2065, December.
    27. John, Kose & Ofek, Eli, 1995. "Asset sales and increase in focus," Journal of Financial Economics, Elsevier, vol. 37(1), pages 105-126, January.
    28. Neil W. Sicherman & Richard H. Pettway, 1992. "Wealth Effects for Buyers and Sellers of the Same Divested Assets," Financial Management, Financial Management Association, vol. 21(4), Winter.
    29. Lang, Larry H P & Stulz, Rene M, 1994. "Tobin's q, Corporate Diversification, and Firm Performance," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1248-1280, December.
    30. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    31. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    32. Mike Burkart & Denis Gromb & Fausto Panunzi, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 693-728.
    33. Khorana, Ajay & Servaes, Henri & Wedge, Lei, 2007. "Portfolio manager ownership and fund performance," Journal of Financial Economics, Elsevier, vol. 85(1), pages 179-204, July.
    34. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," Journal of Finance, American Finance Association, vol. 59(6), pages 2451-2487, December.
    35. Hite, Gailen L. & Owers, James E. & Rogers, Ronald C., 1987. "The market for interfirm asset sales : Partial sell-offs and total liquidations," Journal of Financial Economics, Elsevier, vol. 18(2), pages 229-252, June.
    36. Ronald C. Anderson & David M. Reeb, 2003. "Founding-Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1327, June.
    37. Brown, David T. & James, Christopher M. & Mooradian, Robert M., 1994. "Asset sales by financially distressed firms," Journal of Corporate Finance, Elsevier, vol. 1(2), pages 233-257, August.
    38. Servaes, Henri, 1996. "The Value of Diversification during the Conglomerate Merger Wave," Journal of Finance, American Finance Association, vol. 51(4), pages 1201-1225, September.
    39. José‐Miguel Gaspar & Massimo Massa & Pedro Matos, 2006. "Favoritism in Mutual Fund Families? Evidence on Strategic Cross‐Fund Subsidization," Journal of Finance, American Finance Association, vol. 61(1), pages 73-104, February.
    40. Klein, April, 1986. "The Timing and Substance of Divestiture Announcements: Individual, Simultaneous and Cumulative Effects," Journal of Finance, American Finance Association, vol. 41(3), pages 685-696, July.
    41. Myron B. Slovin & Marie E. Sushka & John A. Polonchek, 2005. "Methods of Payment in Asset Sales: Contracting with Equity versus Cash," Journal of Finance, American Finance Association, vol. 60(5), pages 2385-2407, October.
    42. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(3), pages 475-498.
    43. Alexander, Gordon J & Benson, P George & Kampmeyer, Joan M, 1984. "Investigating the Valuation Effects of Announcements of Voluntary Corporate Selloffs," Journal of Finance, American Finance Association, vol. 39(2), pages 503-517, June.
    44. Ronald C. Anderson & David M. Reeb, 2003. "Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500," Journal of Finance, American Finance Association, vol. 58(3), pages 1301-1328, June.
    45. Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paramita Prananingtyas & Indira Ahimsari Soetomo, 2020. "Development and Setting of Mutual Funds in Indonesia," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 344-351.
    2. Clemens Sialm & T. Mandy Tham, 2016. "Spillover Effects in Mutual Fund Companies," Management Science, INFORMS, vol. 62(5), pages 1472-1486, May.
    3. Babalos, Vassilios & Mamatzakis, Emmanuel C. & Matousek, Roman, 2015. "The performance of US equity mutual funds," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 217-229.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Angélica María Sánchez-Riofrío & Luis Ángel Guerras-Martín & Francisco Javier Forcadell, 2015. "Business portfolio restructuring: a comprehensive bibliometric review," Scientometrics, Springer;Akadémiai Kiadó, vol. 102(3), pages 1921-1950, March.
    2. Vinay Patel, 2015. "Price Discovery in US and Australian Stock and Options Markets," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 27, July-Dece.
    3. Vinay Patel, 2015. "Price Discovery in US and Australian Stock and Options Markets," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 6-2015.
    4. Suranjita Mukherjee & Carol Padgett, 2006. "Return Differences Between Family and Non-Family Firms: Absolute and Index Differences," ICMA Centre Discussion Papers in Finance icma-dp2006-11, Henley Business School, University of Reading.
    5. Christian Weiss & Stefan Hilger, 2012. "Ownership concentration beyond good and evil: is there an effect on corporate performance?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(4), pages 727-752, November.
    6. Kang, Jun-Koo & Shivdasani, Anil, 1997. "Corporate restructuring during performance declines in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 29-65, October.
    7. Weiß, Christian, 2010. "The Ownership Concentration of Firms: Three Essays on the Determinants and Effects," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 30247, March.
    8. Jory, Surendranath R. & Madura, Jeff & Ngo, Thanh N., 2012. "Deal structure decision in the global market for divested assets," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 104-116.
    9. Claessens, Stijn & Djankov, Simeon & Joseph P. H. Fan & Lang, Larry H. P., 1999. "Corporate diversification in East Asia : the role of ultimate ownership and group affiliation," Policy Research Working Paper Series 2089, The World Bank.
    10. Rolf Bühner & Jörg Digmayer, 2003. "Aktienmarktreaktionen auf die Ankündigungen von Spin-offs und Sell-offs," Schmalenbach Journal of Business Research, Springer, vol. 55(7), pages 657-677, November.
    11. Hegde, Shantaram & Seth, Rama & Vishwanatha, S.R., 2020. "Ownership concentration and stock returns: Evidence from family firms in India," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    12. Alexander Radygin & Revold Entov & Marina Turuntseva & Alena Gontmakher & Harry Swain & Jeff Carruthers & Karen Minden & Cheryl Urban, 2002. "The problems of corporate governance in Russia and its regions," Published Papers 12, Gaidar Institute for Economic Policy, revised 2002.
    13. Stavros E. Arvanitis & Theodoros V. Stamatopoulos & Dimitris Terzakis, 2018. "Is There a Non-linear Relationship of Market Value with Cash and Ownership?," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(1), pages 3-25, January-M.
    14. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    15. Zeineb Barka & Taher Hamza, 2020. "The effect of large controlling shareholders on equity prices in France: monitoring or entrenchment?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(3), pages 769-798, September.
    16. Saeyoung Chang & Michael Hertzel, 2004. "Equity Ownership and Firm Value: Evidence from Targeted Stock Repurchases," The Financial Review, Eastern Finance Association, vol. 39(3), pages 389-407, August.
    17. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    18. Hamadi, Malika & Heinen, Andréas, 2015. "Firm performance when ownership is very concentrated: Evidence from a semiparametric panel," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 172-194.
    19. Pablo de Andrés-Alonso & Valentín Azofra-Palenzuela & Juan A. Rodríguez-Sanz, 2000. "Endeudamiento, oportunidades de crecimiento y estructura contractual: un contraste empírico para el caso español," Investigaciones Economicas, Fundación SEPI, vol. 24(3), pages 641-679, September.
    20. Luc Laeven & Ross Levine, 2008. "Complex Ownership Structures and Corporate Valuations," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 579-604, April.

    More about this item

    Keywords

    Asset sales; Mutual funds; Focus; Divestitures;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    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:eee:jbfina:v:37:y:2013:i:12:p:4834-4849. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    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.