School of Business

Impact of competition on mutual fund marketing expenses

Document Type

Article

Abstract

In this paper, I study the impact of market competition on mutual fund marketing expenses. In a sample of US domestic equity mutual funds, I find that marketing expenses decrease with the competition. This effect is stronger for top-performing funds. These results are counterintuitive, as one would ordinarily expect funds to incur more marketing expenses in response to pressure from competing funds. However, these results support the narrative that mutual funds employ marketing to draw attention to their performance in a tournament-like market, where the top-performing funds (the winners) are rewarded with disproportionately high new investments. Higher competition decreases the chances of each fund to outperform the others and adversely affect their ability to attract new investments, and the funds respond by decreasing marketing expenses. Thus, competition appears to have implications for investor search cost.

Publication Title

International Journal of Financial Studies

Publication Date

2018

Volume

6

Issue

1

ISSN

2227-7072

DOI

10.3390/ijfs6010029

Keywords

12b1 fee, competition, investor search cost, marketing expenses, mutual fund

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