Financial consequences of mutual fund mergers

Abstract

This study examines the impact of mutual fund mergers on performance and investment flows of target and acquiring funds. Results indicate some improvements in the post-merger performance for target funds shareholders. Results also confirm prior evidence of negative net asset flows in target funds in the premerger period as well as negative, but not significant, net asset flows in the years following the merger. However, a more detailed analysis allows us to observe that this lack of significance in the negative reaction of investors to mutual fund mergers is explained by the compensation of abnormally high inflows and outflows in the resultant funds. These substantial flows are significantly above the average in their market segment, especially regarding money flows. This finding provides evidence that investors pay attention to mutual fund mergers, especially institutional investors who are concentrated on the market possibilities resulting from these organizational processes.

Investment Objectives and Factors That Influence the Disappearance of Spanish Mutual Funds

“…Additionally, the higher the total net assets, the lower the risk of mortality, decreasing by 0.091% for bond funds and 0.215% for equity funds. Regarding variation in size, there is a relationship between mortality and capital outflow in the two years prior to the fund disappearing, as suggested by authors such as Ding (2006), Allen and Parwada (2006), Boubakri et al (2014), and Andreu and Sarto (2016). Therefore, the third hypothesis is confirmed in both groups.…”

“…Ding (2006) analyzes a sample of 604 equity funds from the US market during the period 1962-1999, finding that older funds show outflows during the three years prior to closing, while younger funds present fund inflows up to the final year, which is when investors begin to withdraw capital due to the drop in performance intensely. Ding (2006), Allen and Parwada (2006), Boubakri et al (2014) and Andreu and Sarto (2016) consider that there is an intense withdrawal of capital from mutual funds in response to uncertain, unstable economic situations. So, the following statement is hypothesized:…”

“…Several studies show that a poor past performance increases the probability of disappearance and intensifies investment outflows (Brown & Goetzmann, 1995;Carhart, 1997;Lunde et al, 1999;Jayaraman et al, 2002;Asebedo & Grable, 2004;Zhao, 2005;Bu & Lacey, 2008;Rohleder et al, 2011;Linnainmaa, 2013;Filip, 2014;Cogneau & Hübner, 2015;Andreu & Sarto, 2016). Cogneau and Hübner (2015) analyze a sample of equity funds during the period 1994-2010, distinguishing them by currency (GBP, EUR, USD, JPY and CHF) and domicile (United Kingdom, Luxembourg, France, Italy, Belgium, and Austria), considering that the disappearance of mutual funds can be predicted from their performance in the previous year.…”

Mutual fund performance: dividends do matter

“…In particular, we explore the differences using a market factor that either reinvests dividends or does not. As in Andreu and Sarto (2013), we apply two asset pricing models widely used in the mutual fund performance literature: in the CAPM model shown in expression (1) performance is measured according to Jensen (1968), and in (2) it is measured using an alpha extended version under the three-factor model of Fama and French (1993).…”

“…HML represents the book-to-market factor, and is calculated as the return difference between value stocks (stocks with a high book-to-market ratio) and growth stocks (stocks with a low book-to-market ratio). To calculate these factors, we follow the methodology described in Andreu and Sarto (2013) and use data from Morningstar.…”