Institutional distance and US-based international mutual funds’ financial performance

Finance Research Letters, Volume 51, January 2023, 103411

JorgeFleta-AsínaFernandoMuñozb

a IEDIS. Dpto. de Dirección y Organización de Empresas, Universidad de Zaragoza, Facultad de Economía y Empresa. C/Gran Vía 2, 50005 Zaragoza (Spain)
b IEDIS. Dpto. de Contabilidad y Finanzas, Universidad de Zaragoza, Facultad de Economía y Empresa, C/Gran Vía 2, 50005 Zaragoza (Spain)

Received 15 August 2022, Revised 26 September 2022, Accepted 13 October 2022, Available online 17 October 2022, Version of Record 21 October 2022.

ABSTRACT

In this research, we analyze the impact of the institutional distance between investor and investee countries on the risk-adjusted financial performance for a broad sample of US-based international mutual funds in the period 1997-2021 (1,704 equity mutual funds/106,521 monthly portfolios). Our results show that a greater institutional distance jeopardizes mutual fund financial performance. Another relevant finding is that holding a more country-concentrated portfolio positively impacts financial performance. In addition, we reveal an interaction effect between the two variables, meaning that the portfolio country concentration moderates the negative impact of institutional distance, supporting the information advantage theory.