Do Voluntary Investor Protection Mechanisms Spread to High or Low Quality Legal Regimes?

Abstract

We examine the spread of voluntary investor protection mechanisms across countries. In particular, we consider UCITS protection for mutual funds. We explore the spread of 1344 UCITS bond funds and 2784 UCITS equity funds from various countries of origin in Europe initiated in the 2001-2007 period, and distributed internationally over the 2001-2009 period. We consider whether funds are more likely to expand operations to other countries with higher or lower investor protection regimes. The data indicate voluntary investor protection is more likely to spread to countries with higher legal standards. In other words, voluntary investor protection mechanisms are not a substitute for poor laws in a country; rather, better legal conditions stimulate the voluntary adoption of investor protection mechanisms to protect investors over and above that which is the minimal requirement in a country. This central finding holds over a wide range of robustness checks.