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Competition in Financial Services: Evidence from B ritish Mutual Funds
Author(s) -
Warburton A. Joseph
Publication year - 2012
Publication title -
journal of empirical legal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.529
H-Index - 24
eISSN - 1740-1461
pISSN - 1740-1453
DOI - 10.1111/j.1740-1461.2012.01271.x
Subject(s) - competition (biology) , business , financial services , mutual fund , investment (military) , finance , industrial organization , economics , monetary economics , ecology , politics , political science , law , biology
This article explores the effects of competition on risk‐taking behavior and firm performance within the financial services industry. It does so by exploiting a regulatory change that allowed new players to enter the B ritish mutual fund industry. Exploiting this regulatory shock, we trace nontrivial linkages among industry competition, risk taking, and performance. Greater competition followed the regulatory liberalization, leading to a significant increase in risk‐taking behavior of funds. Competition generated performance efficiencies, forcing underperforming funds to exit and halting earlier value destruction. Competition, however, did not produce tangible cost savings for consumers of investment services.