Institutional and Socio-Cultural Factors Explaining the Development of Mutual Funds. A Cross-Country Analysis

Tulbure, Narcis and Catarama, Delia (2009): Institutional and Socio-Cultural Factors Explaining the Development of Mutual Funds. A Cross-Country Analysis.

Abstract

This paper explores the institutional and socio-cultural factors explaining the differential development and growth rates of the mutual fund industry in a sample of 41 countries. It draws on multivariate OLS regressions. It shows that the development of mutual funds is influenced positively by regulatory quality and economic and financial system development, but it is negatively related to the presence of a Lamfalussy type regulatory framework (as in all member states of the European Union). Also, widespread belief in work as the legitimate source of monetary gain seems to be negatively associated with mutual fund development. The growth rates of national mutual fund industries are negatively related to general economic development. The negative coefficient of the variable coding for regulatory quality indicates that a poorer regulation of the field (when compared to the developed countries) does not necessarily inhibit growth, especially in the case of young industries. Lamfalussy regulations do not have any significant effect on mutual fund growth. At the same time, mutual fund industries have grown most rapidly in countries with high percentages of Muslim and Christina Orthodox believers.

• Item Type: MPRA Paper
• Language: English
• Keywords: mutual funds; the Lamfalussy process; quality of regulations; work and money; socio-cultural values; religion and finance
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; K - Law and Economics > K2 - Regulation and Business Law > K22 - Business and Securities Law; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z13 - Economic Sociology ; Economic Anthropology ; Social and Economic Stratification

References

Ali, P. U., Gregoriou, G. N., 2006. International Corporate Governance after Sarbanes-Oxley. John Whiley and Sons, Inc. Hoboken, NJ.

Andenas, M., Avgerinos, Y. (Eds.), 2003. Financial Markets in Europe: Towards a Single Regulator? Kluwer Law International. London.

Baker, A., Hudson, D., Woodward, R., 2005. Governing Financial Globalization: International Political Economy and Multi-Level Governance. Routledge, London and New York.

Barro, R. J., Lee, J.-W., 2000, International Data on Educational Attainment: Updates and Implications. CID Working Paper, 1-35.

Beck, T., Demirgüç-Kunt, A., Levine, R., 2002. Law and Finance: Why Does Legal Origin Matter? NBER Working Papers.

Beck, T., Demirgüç-Kunt, A., Levine, R., 2004. Law and Firms' Access to Finance. NBER Working Papers.

Beck, T., Demirgüç-Kunt, A., Levine, R., 2000. A New Database on Financial Development and Structure. World Bank Economic Review 14, 597-605.

Beck, T., Demirgüç-Kunt, A., Maksimovic, V., 2005. Financial and Legal Constraints to Growth: Does Firm Size Matter? Journal of Finance 60, 137-177.

Beck, T., Levine, R., 2002. Stock Markets, Banks, and Growth: Panel Evidence. NBER Working Papers.

Beck, T., Levine, R., Loayza, N., 2000. Finance and the Sources of Growth. Journal of Financial Economics 58, 261-300.

Berglöf, E., 2005. What do Firms Disclose and Why? Enforcing Corporate Governance and Transparency in Central and Eastern Europe. Oxford Review of Economic Policy 21, 178-197.

Bermann, G. A., Pistor, K. (Eds.), 2004. Law and Governance in an Enlarged European Union. Hart Publishing, Oxford and Portland.

Bogle, J., 1999. Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor. John Wiley & Sons, Inc, New York.

Buysschaert, A., Deloof, M., Jegers, M., 2004. Equity Sales in Belgian Corporate Groups: Expropriation of Minority Shareholders? A clinical Study. Journal of Corporate Finance 10, 81-103.

Carhart, M. M., 1997. On Persistence in Mutual Fund Performance. Journal of Finance 53, 57-82.

CESR, 2001. Final Report on the Regulation of European Securities Markets. Committee of Wise Men, Committe of European Securities Regulators.

Chordia, T., 1996. The Structure of Mutual Fund Charges. Journal of Financial Economics 41, 3-39.

Chui, A., Titman, S., Wey, K.C. J., 2000. Corporate Groups, Financial Liberalization and Growth: The Case of Indonesia. World Bank Policy Paper.

Ciobanu, A., Dragotă, V., Cataramă, D., Semenescu, A., Lăcătuş, C. M., 2007. Minority Shareholders' Protection in Romania. Bucharest Academy of Economic Studies Research Paper.

Collins, S., Mack, P., 1997. The Optimal Amount of Assets under Management in the Mutual Fund Industry. Financial Analyst Journal, 67-73.

Comaroff, J., Comaroff, J. L., 1999. Occult Economies and the Violence of Abstraction: Notes from the South African Postcolony. American Ethnologist 26, 279-303.

Comaroff, J., Comaroff, J. L., 2001. Millennial Capitalism: First Thoughts on a Second Coming. In: Comaroff, J., Comaroff, J. L. (Eds.), Millennial Capitalism and the Culture of Neoliberalism. Duke University Press, Durham and London.

Committee of Wise Men mandated by the European Council, 2001. Final Report on the Regulation of European Securities Markets.

Deeg, R.,1999. Finance Capitalism Unveiled: Banks and the German Political Economy. The University of Michigan Press, Ann Arbor, MI.

Deloitte Touche Tohmatsu Emerging Markets, 2002. Romanian financial markets reform project: white paper - comments on the regulatory implementation of mandatory purchase transactions. SEGIR FS task order no. 812.

Demirgüç-Kunt, A., Karacaovali, B., Laeven, L., 2005. Deposit Insurance Around the World: A Comprehensive Database. World Bank Policy Research Working Paper.

Demirgüç-Kunt, A., Laeven, L, Levine, R., 2004. Regulations, market structure, institutions, and the cost of financial intermediation. Journal of Money, Credit and Banking 36, 593-622.

Dollar, D., Hallward-Driemeier, M., Mengistae, T., 2004. Investment Climate and International Integration, World Bank Policy Research Working Paper.

Dragotă, V., 2006. Minority shareholders' protection in Romanian capital markets: evidence on dividends. Euro-Mediterranean Economics and Finance Review 1, 76-89.

Dragotă, Victor, Căruntu, M., Stoian, A., 2006. Market Informational Efficiency and Investors' Rationality: Some Evidence on Romanian Capital Market. Global Development Network Research Report, Prague, the Czech Republic.

Dunn, E. C., 2004. Privatizing Poland: Baby Food, Big Business, and the Remaking of Labor. Cornell University Press, Ithaca.

Elton, E. J., Gruber, M., Blake, C., 1996. The persistence of risk-adjusted mutual fund performance. Journal of Business 69, 133-157.

Ferran, E., 2004. Building an EU Securities Market. Cambridge University Press, Cambridge.

Ferrarini, G., Hopt, K. J., Wymeersch, E., 2002. Capital Markets in the Age of the Euro: Cross-Border Transactions, Listed Companies and Regulation. Kluwer Law International, The Hague.

Gruber, M. J.,, 1996. Another puzzle: the growth of actively managed mutual funds. Journal of Finance 51, 783-810.

Hall, P. A., Soskice, D., 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford University Press, Oxford.

Human Development Report, 2008. The United Nations Development Programme (UNDP), New York.

Inglehart, R., 2009. The World Values Survey Database, in The World Values Survey (WVS) Network, Inglehart, R. (Ed.). University of Michigan, Ann Arbor.

Kaminsky, G., Lyons, R. K., Schmukler, S. L., 2001. Mutual Fund Investment in Emerging Markets: An Overview. World Bank Policy Research Working Paper.

Kaufmann, D., Kraay, A., Mastruzzi, M., 2003. Governance Matters III: Governance Indicators for 1996-2002. Policy Research Working Paper. Tthe World Bank, Washington, DC.

Kaufmann, D., Kraay, A., Mastruzzi, M., 2008. Governance Matters VII: Aggregate and Individual Governance Indicators 1996-2007. Policy Research Working Paper. The World Bank, Washington, DC.

Keefer, P., 2004. A Review of the Political Economy of Governance: From Property Rights to Voice. The World Bank Policy Research Working Paper Series.

Khorana, A., Servaes, H., Tufano, P., 2005. Explaining the size of the mutual fund industry around the world. Journal of Financial Economics, 145-185.

Klapper, L., Sulla, V., Vittas, D., 2004. The development of mutual funds around the world. Emerging Markets Review 5, 1-38.

Klapper, L. F., Laeven, L., Love, I., 2006. Corporate governance provision and firm ownership: firm-level evidence for Central Europe. Journal of International Money and Finance 25, 429-444.

Kogut, B., Spicer, A., 2002. Capital market development and mass privatization are logical contradictions: lessons from Russia and the Czech Republic. Industrial and Corporate Change 11, 1-37.

Köke, J., Schröder, M., 2003. The Prospects of Capital Markets in Central and Eastern Europe. ZEW Discussion Paper. Laeven, L., Valencia, F., 2008. Systemic Banking Crises: A New Database, IMF Working Paper Series. Internationa Monetary Fund, Research Department.

Lambsdorff, G., 2008. Transparency International 2008 Corruption Perception Index. University of Passau and Transparency International.

Lamfalussy League Table, 2008. Transposition of Lamfalussy Directives. The European Commission, Bruxelles.

LaPorta, R., Lopez-de-Silanes, F., Shleifer, A., 2000. What works in securities laws? Journal of Finance 61, 1-32.

LaPorta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R. W., 1997. Legal Determinants of External Finance. Journal of Finance 52, 1131-1150.

LaPorta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R. W., 1998. Law and finance. Journal of Political Economy 106, 1113-1155.

LaPorta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R. W., 1999a. The quality of government. Journal of Law, Economics, and Organization 15, 222-279.

LaPorta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R. W., 1999b. Investor protection and corporate governance. Journal of Financial Economics, 58 (1-2), 3-27.

Levine, R., Loayza, N., Beck, T., 2000. Financial intermediation and growth: Causality and Causes, Journal of Monetary Economics 46, 31-77.

Love, I., Laeven, L., Klapper, L.F., 2005. What drives corporate governance reform? firm-level evidence from Eastern Europe. World Bank Policy Research Working Paper.

Majone, G., 1996. Regulating Europe. Routledge, London and New York.

Malhotra, D.K., McLeod, R., 1997. An empirical analysis of mutual fund expenses. Journal of Financial Research 20, 175-190.

Malkiel, B. G., 1995, Returns from investing in equity mutual funds 1971 to 1991. Journal of Finance 50, 549-572.

Mandel, R., Humphrey, C., (Eds.), 2002. Markets and Moralities: Ethnographies of Postsocialism. Berg, New York.

Mantysaari, P., 2005. Comparative Corporate Governance: Shareholders as a Rule-maker. Springer, Vaasa, Finland.

Markiewicz, O., 2007. Why some Central and Eastern European countries were able to create capital markets with growing importance in the economy while others were not? June Paper. Department of Political and Social Science, European University Institute, Florence.

Maurer, B., 1999, Forget Locke? From proprietor to risk-bearer in the new logics of finance. Public Culture 11, 365-385.

Maurer, B., 2006. The anthropology of money. The Annual Review of Anthropology 35, 15-36.

Modigliani, F., Perotti, E., 1997. Protection of minority interest and the development of security markets. Managerial and Decision Economics 18, 519-528.

OECD, 2004a. OECD Principles of Corporate Governance. Organization for Economics Co-operation and Development, Paris.

OECD, 2004b. Survey of Corporate Governance Developments in OECD Countries. Organization for Economics Co-operation and Development, Paris.

OECD, 2006. Methodology for Assessing the Implementation of the OECD Principles on Corporate Governance. Organization for Economics Co-operation and Development, Paris.

Pagano, M., and Volpin, P., 2006. Shareholder Protection, Stock Market Development, and Politics. Finance Working Paper 105/2005, European Corporate Governance Institute.

Pajuste, A., 2002. Corporate Governance and Stock Market Performance in Central and Eastern Europe: A Study of Nine Countries, 1994-2001. SITE Stockholm School of Economics.

Pajuste, A., 2005. Do Good Governance Provisions Shelter Investors from Contagion? Evidence from the Russian Crisis. SSRN Working Paper Series.

Pistor, K., Raiser, M., Gelfer, S., 2000. Law and finance in transition economies. Economics of Transition 8, 325-368.

Pistor, K., Spicer, A. 1997. Investment funds in mass privatization and Beyond. Evidence from the Czech Republic and Russia. In: Lieberman, I., Nestor, S., Desai, R. (Eds.), Between State and Market: Mass Privatization in Transition Economies. The World Bank, Washington, D.C..

PRS Group International Country Risk Guide, 2009. The PRS Group, Washington, DC.

Schmukler, S. L., 2004. Financial globalization: Gain and pain for developing countries. Economic Review, Federal Reserve Bank of Atlanta 39 - 66.

Sevic, Z., (Ed.), 2002. Banking Reforms in South-East Europe. Edward Elgar, Cheltenham, UK.

Shleifer, A., Vishny, R. W., 1997. A survey of corporate governance. Journal of Finance 52, 737-783.

Sirri, E. R., Tufano, P., 1993. Competition and change in the mutual fund industry. In: Hayes, S.M. (Ed.), Financial Services: Perspectives and Challenges. Harvard Business School Press, Boston, MA.

Stulz, R. M., 2004. Does financial structure matter for economic growth? A corporate finance perspective. World Bank Policy Paper.

Tirole, J., 1991. Privatization in Eastern Europe: Incentives and the economics of transition. NBER Macroeconomics Annual 1991 6, 221-268.

Tobe, C., 2000. Mutual fund directors: governance changes proposed for independent directors in the US. Corporate Governance: An International Review 8, 25-31.

Tufano, P., Sevick, M., 1997. Board structure and fee-setting in the US mutual fund industry. Journal of Financial Economics 46, 321-55.

Verdery, K., 1995. "Caritas" and the reconceptualization of money in Romania. Anthropology Today 11, 3-7.

Verdery, K., 1995. Faith, hope and Caritas in the land of the pyramids: Romania, 1990 to 1994. Comparative Studies in Society and History 37, 625-69.

Wallace, H., Wallace, W., Pollack, M.A. (Eds.), 2005. Policy-Making in the European Union. Oxford University Press, Oxford and New York.

Warren, M. G., 2003. European Securities Regulation. Kluwer Law International, The Hague.

World Development Indicators (WDI) Database, 2009. The World Bank, Washington, DC.

Yarrow, G. K., 1985. Shareholder protection, compulsory acquisition and efficiency of the takeover process. The Journal of Industrial Economics 34, 3-16.