We use a comprehensive dataset of equity mutual funds covering 25 countries to study the effects of country-level culture on mutual fund management. Culture contributes to differences in the flow-performance and flow-fee sensitivities of fund investors across countries. Through its effect on flow-performance sensitivity, culture has an economically significant impact on fund manager effort, risk taking and fund performance. In cases where culture raises the sensitivity of flows to fees, the level of fees charged is significantly lower. If culture boosts the performance of active management then this significantly increases the fraction of assets that are actively managed in the fund industry. Overall, our study provides evidence that culture influences the most important aspects of fund industry conduct.

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Mutual funds; Culture; Fund flows; Fund risk taking; Fund performance; Fund fees.