The authors acknowledge the financial support of Carefin, Bocconi University for a related unpublished paper from which this work originates. Lazzari thanks the Cariplo Foundation for a grant supporting this work. The paper benefits from comments received by colleagues attending conferences where it was presented. Our largest debt, however, is to the two referees whose comments improved the paper immensely. Any remaining faults are exclusively ours.
Mutual Fund Incentive Fees: Determinants and Effects
Article first published online: 31 MAR 2010
© 2010 Financial Management Association International
Volume 39, Issue 1, pages 365–392, Spring 2010
How to Cite
Drago, D., Lazzari, V. and Navone, M. (2010), Mutual Fund Incentive Fees: Determinants and Effects. Financial Management, 39: 365–392. doi: 10.1111/j.1755-053X.2010.01076.x
- Issue published online: 31 MAR 2010
- Article first published online: 31 MAR 2010
We investigate the how and why of performance fee provisions in a free contracting environment such as the Italian mutual fund market until 2006. We find weak support for the hypothesis that these provisions emerge as an economically efficient solution in a rational asset management industry plagued by asymmetric information. They appear to emerge mainly as the product of strategic pricing by asset managers wishing to ease market competition, leverage on investors' sentiment, and hedge their cost structure. Alternatively, fears that managers may opportunistically alter funds' investment policies to maximize the option value embedded in the incentive provisions appear unjustified.