| This thesis examines empirically the relationship between voluntary disclosures and investor search costs, and the concomitant effect of disclosure on the flow of funds to mutual funds. We examine the frequency and timeliness of the portfolio disclosures of a sample of retail S&P 500 Index Funds. We also build a disclosure index based on the amount of voluntary disclosures of their index tracking strategies in the 2003 annual prospectuses of a sample of fifty-two S&P 500 index funds. Our results show that mutual funds provide more information voluntarily when investor search costs are high, after controlling for their demand for information. This finding makes the case for the role of search costs in investors' information acquisition, which has not been previously documented in the empirical disclosure literature.; Consistent with the prior literature, we find support for the impact of investors' demand for information on fund disclosure. Funds disclose information more frequently and in a more timely fashion when return volatility is high. Using the disclosure index as the measure of voluntary disclosure, we find that funds disclose more about their strategies, including stock selection strategies, when their absolute tracking errors are high.; We also examine endogenously the costs and benefits associated with mutual fund managers' voluntary disclosure decisions. We find that funds disclose less information when the proprietary costs of the voluntary disclosure are high. However, we did not find capital market benefits to voluntarily disclosing funds, perhaps because the information contents of portfolio and indexing strategy disclosures are not fully recognized by retail fund investors. One possible explanation for funds disclosing voluntarily, despite the lack of capital market benefits, is to lower litigation risks as suggested by disclosure literature. By outlining specific descriptions of their indexing strategy, funds protect themselves from potential attacks based on their management. |
