Exit Decisions in the U.S. Mutual Fund Industry

Abstract

This paper first examines the similarities and differences in the determinants of the three mutual fund exit forms: liquidation, within-family merger, and across-family merger. All defunct mutual fund portfolios are shown to have smaller size and lower inflows. A family is less willing to liquidate a portfolio but more likely to merge a portfolio within the family if it offers more share classes. Large families are more likely to merge portfolios within the family, while a family with poor performance is more likely to sell relatively unique portfolios to other families to stay focused. This paper also investigates the effect of the share class composition of a portfolio on the likelihood of different exit forms and compares within-objective mergers with across-objective mergers.