An Analysis of the Determinants and Shareholder Wealth Effects of Mutual Fund Mergers


  • Narayanan Jayaraman,

  • Ajay Khorana,

  • Edward Nelling

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    • Jayaraman and Khorana are from the Georgia Institute of Technology, and Nelling is from Drexel University. We thank an anonymous referee, Anup Agrawal, Donald Cassidy, Thomas Dee, Rick Green (the editor), Brian Reid, Robert Schwartz, Henri Servaes, Erik Sirri, Laura Starks, Kishore Tandon, Paula Tkac, Ashok Vohra, Sunil Wahal, and seminar participants at the 1999 Western Finance Association Meetings, 1999 European Financial Management Meetings, 1999 Financial Management Association Meetings, 1999 Southern Finance Association Meetings, University of Alabama, Babson College, Baruch College, Drexel University, and Georgia Tech for helpful comments, and Robert Craddock, Melissa Frye, Dennis Gaevski, Victor Huang, and Sandy Lai for valuable research assistance. Financial support from the Georgia Tech Foundation is also gratefully acknowledged. An earlier version of the paper was titled “Causes and Consequences of Mutual Fund Mergers.”


This study examines the determinants of mutual fund mergers and their subsequent wealth impact on shareholders of target and acquiring funds. Results indicate significant improvements in postmerger performance and a reduction in expense ratios for target fund shareholders. In contrast, acquiring fund shareholders experience a significant deterioration in postmerger performance. The net asset flows continue to remain negative for the combined fund in the year following the merger. The likelihood of a fund merger is inversely related to fund size for both within-and across-family mutual fund mergers. However, poor past performance is a significant determinant for only within-family mergers.