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

In this research, we analyse 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 perfor-mance. 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.

Automated summary

This research examines the impact of institutional distance between investor and investee countries on the risk-adjusted financial performance of US-based international mutual funds. The study finds that a greater institutional distance negatively affects mutual fund financial performance, while holding a more country-concentrated portfolio has a positive impact. Additionally, the research reveals an interaction effect between the two variables, showing that the portfolio country concentration moderates the negative impact of institutional distance, supporting the information advantage theory.