 Blurred stars: Mutual fund ratings in the shadow of conflicts of interestYamin Zeng, Qingbo Yuan and Junsheng Zhang Journal of Banking & Finance, 2015, vol. 60, issue C, 284-295 Abstract: Using unique data on trading commission payments to mutual fund rating companies (MFRCs) by mutual funds in China, this paper investigates whether the conflicts of interest arising from trading commission payments bias MFRCs’ mutual fund star ratings and hence affect their informativeness. We find the rating of a mutual fund is more optimistic when the MFRC either (i) receives trading commission fees from the mutual fund or (ii) can potentially receive fees in the future. The paper further shows that the usefulness of ratings in terms of predicting a fund’s future performance is negatively impacted by conflicts of interest. There is also evidence that investors can see through the problem, responding less enthusiastically (in terms of fund flows) to the ratings of conflicted MFRCs. We further find that the introduction of a rating qualification system that aims to improve mutual fund rating quality exacerbates the rating bias. Keywords: Mutual fund rating; Conflicts of interest; Trading commission payment; Rating qualification (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:60:y:2015:i:c:p:284-295 DOI: 10.1016/j.jbankfin.2015.08.029 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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