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Fund expenses and vertical structures of the fund industry

Author

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  • Han, Jae-Joon
  • Kang, Kyeong-Hoon
  • Won, Seungyeon
Abstract
This paper provides a theoretical model on the determination of fund expenses, focusing on vertical structures of the fund industry and customer switching costs. We also empirically test our theoretical findings using data from the Korean fund market. Our first theoretical finding is that a distribution channel that is integrated with an asset management company has an incentive to charge higher distribution fees than an independent channel: a vertically integrated distribution channel tends to raise the costs of rival asset management companies. Our second finding is that the equilibrium is asymmetric in certain circumstances: a channel may want to remain independent, whereas the other wants to be vertically integrated with an asset management company. Our empirical analysis showed evidence supporting the first theoretical prediction.

Suggested Citation

  • Han, Jae-Joon & Kang, Kyeong-Hoon & Won, Seungyeon, 2013. "Fund expenses and vertical structures of the fund industry," Economic Modelling, Elsevier, vol. 35(C), pages 856-864.
    • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:856-864
    DOI: 10.1016/j.econmod.2013.08.033
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    References listed on IDEAS

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    1. Timo P. Korkeamaki & Thomas I. Smythe, 2004. "Effects of Market Segmentation and Bank Concentration on Mutual Fund Expenses and Returns: Evidence from Finland," European Financial Management, European Financial Management Association, vol. 10(3), pages 413-438, September.
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    Cited by:

    1. Parida, Sitikantha & Tang, Zhenyang, 2018. "Price competition in the mutual fund industry," Economic Modelling, Elsevier, vol. 70(C), pages 29-39.
    2. Giorgio Albareto & Andrea Cardillo & Andrea Hamaui & Giuseppe Marinelli, 2020. "Mutual funds' performance: the role of distribution networks and bank affiliation," Temi di discussione (Economic working papers) 1272, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Fund expenses; Vertical structures of fund industry; Switching costs of customers; Distribution channels; Asset management companies; Raising rival's costs;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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