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Expense Shifting: An Empirical Study of Agency Costs in the Mutual Fund Industry

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  • Nicolaj Siggelkow
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    Abstract

    Using a dataset comprising almost all equity and bond funds in existence in 1996, we find that fund providers shift advertising and distribution expenses via so-called 12b-1 fees onto fund shareholders. It is further shown that bonds funds with 12b-1 fees are more risky, while having similar returns, than bond funds without 12b-1 fees. Lastly, we find that fund providers shift part of their research expenses onto fund shareholders by generating soft dollars (rebates in form of research services provided by brokers in return for excess commissions paid by fund providers) and not reducing explicit fees.

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    File URL: http://fic.wharton.upenn.edu/fic/papers/99/9909.pdf
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    Bibliographic Info

    Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 99-09.

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    Date of creation: Jan 1999
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    Handle: RePEc:wop:pennin:99-09

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    Keywords: Mutual Funds; Agency Costs; 12b-1 Fees; Soft Dollars;

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    1. Volkman, David A & Wohar, Mark E, 1995. "Determinants of Persistence in Relative Performance of Mutual Funds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(4), pages 415-30, Winter.
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    3. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
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    17. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "The Persistence of Risk-Adjusted Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 69(2), pages 133-57, April.
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    Cited by:
    1. Edelen, Roger M. & Evans, Richard B. & Kadlec, Gregory B., 2012. "Disclosure and agency conflict: Evidence from mutual fund commission bundling," Journal of Financial Economics, Elsevier, vol. 103(2), pages 308-326.
    2. Javier Gil-Bazo, 2001. "Portfolio Management Fees: Assets Or Profits Based Compensation?," Business Economics Working Papers wb012207, Universidad Carlos III, Departamento de Economía de la Empresa.
    3. Anolli, Mario & Del Giudice, Alfonso, 2008. "Italian Open End Mutual Fund Costs," MPRA Paper 8111, University Library of Munich, Germany.

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