This article is based on a chapter of my Ph.D. dissertation at the University of Michigan Ross School of Business. I thank Amiyatosh Purnanandam for invaluable advice and guidance. I also thank Deniz Anginer, Robert Bliss, Quinn Curtis, David Hess, Vikramaditya Khanna, Han Kim, Clemens Sialm, Michael Simkovic, Andrew Verstein, Bohui Zhang, two anonymous referees, and participants at the Conference on Empirical Legal Studies and the International Banking, Economics and Finance Association annual meeting. All errors are mine.
Competition in Financial Services: Evidence from British Mutual Funds
Article first published online: 6 NOV 2012
© 2012, Copyright the Author. Journal compilation © 2012, Cornell Law School and Wiley Periodicals, Inc
Journal of Empirical Legal Studies
Volume 9, Issue 4, pages 827–858, December 2012
How to Cite
Warburton, A. J. (2012), Competition in Financial Services: Evidence from British Mutual Funds. Journal of Empirical Legal Studies, 9: 827–858. doi: 10.1111/j.1740-1461.2012.01271.x
- Issue published online: 6 NOV 2012
- Article first published online: 6 NOV 2012
This article explores the effects of competition on risk-taking behavior and firm performance within the financial services industry. It does so by exploiting a regulatory change that allowed new players to enter the British mutual fund industry. Exploiting this regulatory shock, we trace nontrivial linkages among industry competition, risk taking, and performance. Greater competition followed the regulatory liberalization, leading to a significant increase in risk-taking behavior of funds. Competition generated performance efficiencies, forcing underperforming funds to exit and halting earlier value destruction. Competition, however, did not produce tangible cost savings for consumers of investment services.