Why Do Mutual Fund Advisory Contracts Change? Performance, Growth, and Spillover Effects
نویسندگان
چکیده
We examine changes in equity mutual funds’ investment advisory contracts. There are substantial advisory compensation rate changes in both directions, with typical percentage rate shifts exceeding one-fourth. We find that rate increases are associated with superior past marketadjusted performance, whereas rate decreases reflect economies of scale associated with growth, and are not associated with extreme poor performance. There are within-family spillover effects. For example, superior (e.g., star) performance for individual funds is associated with rate increases for a family’s other funds. We also document fee rate reductions post-2004 by family funds involved in market-timing scandals, but find no evidence of a spillover to the broader
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