INVESTOR RESPONSES TO MUTUAL FUND MERGERS: AN EMPIRICAL ANALYSIS OF FRENCH BOND FUNDS

The UCITS IV Directives in 2011 proposed measures to facilitate mutual fund mergers, especially cross-border mergers, in order to reduce the number of small and inefficient funds in Europe. However, ten years later, the European market in general and the French market in particular remain very segmented with a large number of "small" funds. Previous studies have suggested that fund promotors used "merger" as a means to disguise poor performance rather than to achieve scale economies. In this context, how do investors react to merger information? Using a sample of French bond funds over the 2002-2015 period, we find that investors seem to respond negatively to merger information. Around the merger date, investors of the target funds tend to substantially redeem their shares, while acquiring funds have difficulties to attract more investors. These results suggest that mergers cannot be considered an effective way to achieve economies of scale.