European Business Schools Librarian's Group
HEC Research Papers Series,
HEC Paris
No 1428: Quality and Product Differentiation: Theory and Evidence from the Mutual Fund Industry
Maxime Bonelli, Anastasia Buyalskaya and Tianhao Yao
Additional contact information
Maxime Bonelli: London Business School - Department of Finance
Anastasia Buyalskaya: HEC Paris
Tianhao Yao: Singapore Management University
Abstract: We investigate the strategic behavior of financial products in differentiating beyond performance, using mutual funds as our laboratory. We provide evidence consistent with low-performing funds strategically using product differentiation, reflected in more unique fund prospectuses, to compete for customers by offering more niche products. Exploiting the issuance of Morningstar ratings as a shock to perceived quality, we establish a causal link between low quality and increased differentiation. Funds receiving a low rating actively change their prospectuses, increasing their product differentiation, which improves their survival likelihood. Much like other consumer products, mutual funds strategically pursue product differentiation to soften quality-based competition.
Keywords: Product Differentiation; Mutual Funds; Industrial Organization; Textual Analysis; Ratings
82 pages, October 11, 2021
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