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An Analysis of the Determinants and Shareholder Wealth Effects of Mutual Fund Mergers

Author

Listed:
  • Narayanan Jayaraman

    (Georgia Institute of Technology,)

  • Ajay Khorana

    (Georgia Institute of Technology,)

  • Edward Nelling

    (Drexel University)

Abstract

This study examines the determinants of mutual fund mergers and their subsequent wealth impact on shareholders of target and acquiring funds. Results indicate significant improvements in postmerger performance and a reduction in expense ratios for target fund shareholders. In contrast, acquiring fund shareholders experience a significant deterioration in postmerger performance. The net asset flows continue to remain negative for the combined fund in the year following the merger. The likelihood of a fund merger is inversely related to fund size for both within- and across-family mutual fund mergers. However, poor past performance is a significant determinant for only within-family mergers. Copyright The American Finance Association 2002.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:jfinan:v:57:y:2002:i:3:p:1521-1551
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    Citations

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    Cited by:

    1. Anolli, Mario & Del Giudice, Alfonso, 2008. "Italian Open End Mutual Fund Costs," MPRA Paper 8111, University Library of Munich, Germany.
    2. Ying-Fen Fu, 2014. "Individual Fund Manager Sentiment, Fund Performance and Performance Persistence," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 870-885.
    3. Namvar, Ethan & Phillips, Blake, 2013. "Commonalities in investment strategy and the determinants of performance in mutual fund mergers," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 625-635.
    4. Fotios Pasiouras & Chrysovalantis Gaganis & Constantin Zopounidis, 2008. "Regulations, Supervision Approaches and Acquisition Likelihood in the Asian Banking Industry," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 15(2), pages 135-154, June.
    5. Philip C. English II & Ilhan Demiralp & William P. Dukes, 2011. "Mutual Fund Exit and Mutual Fund Fees," Journal of Law and Economics, University of Chicago Press, vol. 54(3), pages 723-749.
    6. Agarwal, Vikas & Ma, Linlin & Mullally, Kevin, 2015. "Managerial multitasking in the mutual fund industry," CFR Working Papers 13-10 [rev.], University of Cologne, Centre for Financial Research (CFR).
    7. Gallaher, Steven & Kaniel, Ron & Starks, Laura T, 2015. "Advertising and Mutual Funds: From Families to Individual Funds," CEPR Discussion Papers 10329, C.E.P.R. Discussion Papers.
    8. Ferris, Stephen P. & Yan, Xuemin (Sterling), 2009. "Agency costs, governance, and organizational forms: Evidence from the mutual fund industry," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 619-626, April.
    9. Robert DeYoung & Douglas Evanoff & Philip Molyneux, 2009. "Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 87-110, December.
    10. Bryant, Lonnie L. & Liu, Hao-Chen, 2011. "Mutual fund industry management structure, risk and the impacts to shareholders," Global Finance Journal, Elsevier, vol. 22(2), pages 101-115.
    11. 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.
    12. Robert W. Faff & Jerry T. Parwada & Hun-Lune Poh, 2007. "The Information Content of Australian Managed Fund Ratings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9-10), pages 1528-1547.
    13. Agarwal, Vikas & Ma, Linlin, 2013. "Managerial multitasking in the mutual fund industry," CFR Working Papers 13-10, University of Cologne, Centre for Financial Research (CFR).
    14. Park, Minjung, 2013. "Understanding merger incentives and outcomes in the US mutual fund industry," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4368-4380.
    15. Khorana, Ajay & Tufano, Peter & Wedge, Lei, 2007. "Board structure, mergers, and shareholder wealth: A study of the mutual fund industry," Journal of Financial Economics, Elsevier, vol. 85(2), pages 571-598, August.
    16. repec:pal:assmgt:v:18:y:2017:i:1:d:10.1057_s41260-016-0002-y is not listed on IDEAS
    17. Rakowski, David & Wang, Xiaoxin, 2009. "The dynamics of short-term mutual fund flows and returns: A time-series and cross-sectional investigation," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2102-2109, November.
    18. 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.
    19. Zhao, Xinge, 2004. "Why are some mutual funds closed to new investors?," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 1867-1887, August.

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