To Switch or Not to Switch : The Role of Asset Growth on Fund Management Structure

This paper examines how mutual funds respond to constraints imposed by asset growth. We find a fund's decision to switch management structure to be largely driven by asset growth. However, we find little evidence that changes in management structure are associated with superior fund performance, possibly due to the limited investment ideas of fund managers. Finally, we find that investors respond negatively to funds that change their management structure. Our overall findings are consistent with prior literature on the prevalence of diseconomies of scale in mutual funds and have significant policy implications for regulators in terms of how funds should be regulated as they grow larger