Institutional Trading and Soft Dollars


  • Jennifer S. Conrad,

  • Kevin M. Johnson,

  • Sunil Wahal

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    • Conrad is from the University of North Carolina, Johnson is from Aronson + Partners, Philadelphia, PA, and Wahal is from Emory University. Part of this research was conducted while the first author was visiting the University of Michigan. We thank Wayne Wagner, Larry Cuneo, and Mark Edwards of the Plexus Group for providing data. Mehmet Ozbilgin and Keith Maldin provided research assistance and Ron Harris provided excellent computational assistance. We thank seminar participants at Cornell University, Swedish School of Economics, Norwegian School of Management, University of Michigan, University of Notre Dame, Michigan State University, the WFA meetings in San Diego, Laszlo Birinyi, Bill Carney, Jim Chandler, Leo Guzman, Ken Kavajecz, Paul Irvine, René Stulz, Wayne Wagner, Marc Zenner, and two anonymous referees for helpful suggestions.


Proprietary data allow us to distinguish between institutional investors' orders directed to soft-dollar brokers and those directed to other types of brokers. We find that soft-dollar brokers execute smaller orders in larger market value stocks. Allowing for differences in order characteristics, we estimate the incremental implicit cost of soft-dollar execution at 29 (24) basis points for buyer- (seller-) initiated orders. For large orders, incremental implicit costs are 41 (30) basis points for buys (sells). However, we document substantial variability in these estimates, and research services provided by soft-dollar brokers may at least partially offset these costs.