Investors' response to mutual fund company mergers

Abstract

Purpose

This paper aims to examine mutual fund investors' response to mergers of Australian mutual fund companies.

Design/methodology/approach

Two matching‐control techniques are employed to analyse the impact of mergers on excess money in and out of open and closed funds involved in the transactions. The paper employs cross‐sectional regression analyses to examine the impact of mergers on different types of parties to mergers.

Findings

The results suggest that mergers are not accompanied by increased money flows. Instead investors withdraw from the target funds prior to and after the merger. Funds belonging to specialist mutual fund companies record more gains in assets under management than declines following mergers, and that money inflow gains at competing funds induce reductions of management expense ratios at target funds.

Research limitations/implications

This paper studies mergers in only one industry in a single country. Future studies may extend to other industries and economies.

Originality/value

This paper extends prior research on the flow effects of mergers at individual fund level by considering the issue at the corporate level.

Citation

Allen, D.E. and Parwada, J.T. (2006), "Investors' response to mutual fund company mergers", International Journal of Managerial Finance, Vol. 2 No. 2, pp. 121-135. https://doi.org/10.1108/17439130610657340