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Is There Investment Value in the Soft-Dollar Arrangement? Evidence from Mutual Funds*

Is There Investment Value in the Soft-Dollar Arrangement? Evidence from Mutual Funds* Combining novel data on analyst employment history and mutual fund commission payments, we show that client funds generate higher returns on stocks for which they have access to research by industry expert analysts. The outperformance is greater when funds are more important clients and cannot be attributed to tipping. Client funds place modestly higher weights on stocks covered by industry expert analysts and allocate more commissions to brokers providing such coverage. For identification, we exploit exogenous analyst coverage disruptions. Our findings contribute to the debate on whether mutual funds obtain any investment value from access to analysts through the soft-dollar arrangement.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

Is There Investment Value in the Soft-Dollar Arrangement? Evidence from Mutual Funds*

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References (113)

Publisher
Oxford University Press
Copyright
© The Author(s) 2023. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com.
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/hhad010
Publisher site
See Article on Publisher Site

Abstract

Combining novel data on analyst employment history and mutual fund commission payments, we show that client funds generate higher returns on stocks for which they have access to research by industry expert analysts. The outperformance is greater when funds are more important clients and cannot be attributed to tipping. Client funds place modestly higher weights on stocks covered by industry expert analysts and allocate more commissions to brokers providing such coverage. For identification, we exploit exogenous analyst coverage disruptions. Our findings contribute to the debate on whether mutual funds obtain any investment value from access to analysts through the soft-dollar arrangement.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Journal

The Review of Financial StudiesOxford University Press

Published: Jan 24, 2023

Keywords: G11; G14; G17; G20

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