Abstract

Recent scandals in the business world have intensified the demand for an explanation of the causes of corporate wrongdoing. This study empirically tests the effects of mutual fund management fees and control structures on the likelihood of illegal activity within mutual fund organizations. Specific attention is given to the presence of agency duality issues in the mutual fund industry and how this influences the motivations and decisions of fund managers. Findings provide support for the hypothesized relationship that higher levels of management fees decrease the likelihood of illegal behavior. Additionally, control of the mutual fund by external management is found to have a negative impact on the likelihood of illegal activity while also acting as a moderator of the management fee-illegal behavior relationship.