Mutual Fund Advisory Contracts: An Empirical Investigation


  • Daniel N. Deli

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    • Arizona State University. I have benefited from the comments of Jay Coughenour, Jeff Harris, Michele LaPlante, René Stulz, Raj Varma, Richard Green (the editor), and an anonymous referee.


We investigate marginal compensation rates in mutual fund advisory contracts and find the following. Equity and foreign fund advisors receive higher marginal compensation than debt and domestic fund advisors. Advisors of funds with greater turnover receive higher marginal compensation. Also, closedend fund advisors receive higher marginal compensation than open-end fund advisors. Finally, we find that marginal compensation is lower for advisors of large funds and members of large fund families. We argue that these differences in marginal compensation reflect differences in advisor marginal product, differences in the difficulty of monitoring performance, differences in control environments, and scale economies.