The Performance of Investment Bank Affiliated Mutual Funds: Conflicts of Interest or Informational Advantage?
59 Pages Posted: 13 Apr 2011
Date Written: February 14, 2011
Using a comprehensive sample of U.S. mutual funds from 1992 to 2004, we find strong evidence that investment bank affiliated funds underperform unaffiliated funds. Consistent with the conflict of interest hypothesis, we find that affiliated funds hold disproportionately large amounts of stocks of their IPO and SEO clients. Moreover, worse performing clients are more likely to be held by affiliated funds. Our results are robust to alternative risk-adjustments, portfolio weighting schemes, and regression methodologies. Overall, our findings are consistent with the idea that investment banks use affiliated funds to support underwriting business at the expense of fund shareholders.
Keywords: Mutual fund performance, Investment bank affiliated mutual funds, Investment banking relationships
JEL Classification: G23, G24, G11
Suggested Citation: Suggested Citation