Lazy investors, lazy fund managers, lousy performance: national culture and mutual fund management

In this paper, we use a comprehensive dataset of equity mutual funds covering 30 countries to study the effects of national culture on mutual fund management. Culture contributes to differences in the flow-performance and flow-fee sensitivities of fund investors across countries. The effect of culture on flow-performance sensitivity has an economically significant impact on fund manager risk-taking and fund performance. Where culture raises the sensitivity of flows to fees, the level of fees charged is significantly lower. We also show that if culture boosts the performance of active management then this significantly increases the fraction of assets that are actively managed in the fund industry. Our findings are the first large-scale evidence that culture affects some of the most important aspects of mutual fund management.