Is There Investment Value in Soft Dollar Arrangements? Evidence from Mutual Fund Commission Allocations


Veronika Pool
Veronika Pool
  • Speaker
Kelley School of Business Bloomington, Indiana University Bloomington

Event Information

Type
Research Seminar
Programme
Finance
Date
Tue. 5 Sep. 2017
Contact
Flora van Oosterom
Time
15:30-17:00
Location
VB-56


Abstract

Using novel biographical data on the industry work experience of analysts employed by brokerages, we provide first evidence that mutual funds obtain valuable investment ideas through soft-dollar arrangements.  We show that funds allocate higher commissions to brokerages with industry experienced analyst coverage on portfolio holding firms; they generate higher abnormal returns and exhibit a modest bias on these stocks.  For identification, we exploit disruptions to research coverage emanating from turnover, retirements, deaths and brokerage mergers. Analysts with longer industry experience, connections to covered firms’ management, and those who cover firms moving more synchronously with industry fundamentals or with poor information environments confer greater benefits.