The exit determinants and wealth effects in the Taiwan mutual fund industry

Authors: Mei-Chen Lin; Dai-Tzung Chung

Journal: Chia Da Management Review. Dec. 2011, 31(2): 61-99.

Keywords: Mutual fund;Performance;Flow;Liquidationk;Merger

Abstract:
This study examines the determinants of mutual fund mergers and liquidations, and discusses the subsequent wealth impacts of mergers on investors in the Taiwan Mutual Fund Industry. Liquidated funds showed the worst performance, funds merged within the same family ranked second, and surviving funds were the best. Poor prior performance and long-term fund outflows increase the possibility of being liquidated. Similarly, poor prior performance and short-term fund outflows lead to higher odds of a within-family merger. Investors in an acquiring fund experienced a significant deterioration in performance subsequent to the merger activity. In contrast, the investors of target funds benefited from these combinations. The net asset flows continued to remain negative for the combined fund in the year following the merger. The expense ratio of combined funds declined in the second post-merger year due to improved economies of scale after the merger.