tailieunhanh - Why Do Mutual Fund Advisory Contracts Change? Performance, Growth, and Spillover Effects

In itself, the international workshop was also the first step in integrating the international and regional networks of social funds by bringing together families of programs that started with different sector priorities and approaches, such as the AGETIPs in Western Africa and the social investment funds in Latin America, and by stimulating the creation of social funds networks in Eastern Africa, Eastern Europe and Central Asia, and Northern Africa and the Middle East. The international development agencies and the NGOs at the workshop committed them- selves to more integrated and coordinated support to social funds. They also committed to the promotion of a more systematic use of. | Why Do Mutual Fund Advisory Contracts Change Performance Growth and Spillover Effects Jerold B. Warner and Joanna Shuang Wu Simon Graduate School of Business Administration University of Rochester. The authors gratefully acknowledge helpful comments from Dan Deli AFA discussant Campbell Harvey the editor Thomas Lys Peter Tufano Jerry Zimmerman workshop participants at the University of Rochester and Northwestern University and the referees. A number of investment industry professionals have also provided valuable feedback. These include Joseph Willett Marsico Funds Rochelle Antoniewicz Investment Company Institute and Brett Goddard Lipper . We also thank Kalina Berova Jeff Han and Shunlan Fang for excellent research assistance. Why Do Mutual Fund Advisory Contracts Change Performance Growth and Spillover Effects ABSTRACT 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 market-adjusted 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 . 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 industry. This paper examines changes in equity mutual funds investment advisory contracts. Advisory contracts generally pay the advisor a fee which is a percentage of the fund s total net assets. Fees are substantial. The median annual fee is roughly 80 basis points in our sample representing about half of total expenses. The paper is the first to document changes in the advisory rate specified in the contract and to .