Thomas I. Smythe

Gains to Mutual Fund Sponsors Offering Multiple Share Class Funds

Although the number of mutual funds grew during the 1990s, much of the growth is attributable to the introduction of multiple share class (MS) funds. Proponents argue that the MS structure leads to cost savings, which can be passed onto investors as lower expenses. However, if the structure lowers costs, sponsors are likely to profit from it. Though investors are concerned about the base expense ratio, the sum of administrative and management fees, fund sponsors generate profits from the management fees. As such, they would prefer to increase the management fee if they can simultaneously lower administrative fees. Our results indicate that MS fund investors pay lower administrative fees, but management fees are approximately 7 basis points higher than single-class funds. Overall, base expense ratios are higher than for single-class funds, suggesting fund sponsors capture the cost benefits the MS structure provides. Our results are robust to different model specifications and different estimation techniques. Southern Finance Association and the Southwestern Finance Association.

Advertising and mutual fund asset flows

Purpose – The paper aims to examine the effect of advertising on mutual fund cash flows in the Finnish fund market.Design/methodology/approach – The papers unique data set allows the observation of the effects of monetary advertising spending and the choice of advertising media.Findings – The paper finds that neither past years performance nor advertising alone is sufficient to produce increased cash flows. However, advertising together with past performance is found to significantly affect cash flows. The positive effect of advertising is limited to the use of non‐perishable advertising media. Additionally, it is found that fund families spending proportionately more on advertising receive higher asset flows.Originality/value – The data are unique in that they can identify fund families that advertise, and also how much they spent on advertising in a given year and the dollar amount spent on five different media types. Obviously, having also fund level data available would enable more thorough analysis.

Division Manager Lobbying Power and the Allocation of Capital

We investigate whether division manager lobbying power affects the allocation of capital in multi-divisional firms. We find that firm-level disparities in division manager lobbying power (measured by tenure, time-in-position, board membership, and top executive status) affect capital allocation in expected ways. Managers with greater relative lobbying power compete for capital expenditures from a position of strength. Evidence is also provided which suggests that division manager ownership mitigates lobbying efforts. Furthermore, disparity in division manager lobbying power is associated with lower firm excess value. These results support the view that division manager influence activities impact the operation of internal capital markets.