Journal of Financial and Quantitative Analysis

Research Articles

The Performance of Investment Bank-Affiliated Mutual Funds: Conflicts of Interest or Informational Advantage?

(Grace) Qing Haoa1 and Xuemin (Sterling) Yana2


a2 Trulaske College of Business, University of Missouri, 403 Cornell Hall, Columbia, MO 65211.


Using a comprehensive sample of U.S. mutual funds from 1992 to 2004, we find strong evidence that investment bank-affiliated funds underperform unaffiliated funds. Consistent with the conflict of interest hypothesis, we find that affiliated funds hold disproportionately large amounts of stocks of their initial public offering and seasoned equity offering clients. Moreover, worse-performing clients are more likely to be held by affiliated funds. Our results are robust to alternative risk adjustments, portfolio weighting schemes, and regression methodologies. Overall, our findings are consistent with the idea that investment banks use affiliated funds to support underwriting business at the expense of fund shareholders.

(Online publication February 13 2012)


We thank an anonymous reviewer and Paul Malatesta (editor) for their constructive comments. We also thank Paul Brockman, Yong Chen, Stephen Haggard, Andy Puckett, Laura Starks, and seminar participants at the University of Missouri and the 6th China International Conference in Finance for their helpful comments. We acknowledge the financial support from the University of Missouri Research Board and the University of Missouri–Columbia Research Council.