Where Do Investors Invest: Funds, Fund Management Companies, or Fund Distributors?

Uninformed investors preferentially select distribution companies to purchase funds that suit their investment objectives because they cannot evaluate each product themselves. Thus, the investment decision depends significantly on their chosen fund distributor’s recommendation, as well as fund and fund management company characteristics. This study analyzes whether fund flows from each distribution channel indicate different responses to the determinants of investment decisions and whether this distinction is caused by a fund distributor’s transaction-specific variables. The results demonstrate that fund and fund management company flows have significantly different patterns according to distribution channels, and fund distributor flows are affected by their financial business segment, market share, vertical relation, and company evaluation grade. This result contributes by providing the insight that changes in the incentive structure of distribution channels lead to very different outcomes in terms of investor protection and market competition.