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Are mutual fund fees excessive?

Author

Listed:
  • Adams, John C.
  • Mansi, Sattar A.
  • Nishikawa, Takeshi

Abstract

There is a long running debate over whether competition in the mutual fund industry limits the ability of investment advisors to charge fees that are disproportionate to the services they provide. We posit that disproportionately high fees are prevalent in funds with multiple share classes and those with weak governance structures. Using a comprehensive sample of index mutual funds for the from 1998 to 2007, we find that internal governance mechanisms matter primarily for funds with relatively small share classes where investors often face increased search costs and/or restricted access to competitive mutual funds. Additionally, we find that funds managed by publicly held sponsors are associated with disproportionately higher fee spreads (about 28 basis points). The results are robust to the inclusion of board characteristics, share class structure, and investment objectives. Overall, our findings suggest that competition and agency considerations are important determinants in the pricing of mutual funds.

Suggested Citation

  • Adams, John C. & Mansi, Sattar A. & Nishikawa, Takeshi, 2012. "Are mutual fund fees excessive?," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2245-2259.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:8:p:2245-2259
    DOI: 10.1016/j.jbankfin.2012.04.003
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    References listed on IDEAS

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    Cited by:

    1. Jonathan Wiley, 2014. "Illiquidity Risk in Non-Listed Funds: Evidence from REIT Fund Exits and Redemption Suspensions," The Journal of Real Estate Finance and Economics, Springer, vol. 49(2), pages 205-236, August.
    2. Jeremy Burke & Angela Hung & Jack Clift & Steven Garber & Joanne K. Yoong, 2015. "Impacts of Conflicts of Interest in the Financial Services Industry," Working Papers WR-1076, RAND Corporation.
    3. repec:eee:ecmode:v:70:y:2018:i:c:p:29-39 is not listed on IDEAS

    More about this item

    Keywords

    Mutual funds; Fee spreads; Board structure; Shareholder litigation; Advisory fees;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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