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Prof. Sugata Roychowdhury
DeWitt W. Buchanan Jr. Professor
Professor of Accounting Information & Management
Kellogg School of Management at Northwestern University

This study examines whether a regulation requiring increased fee transparency in one product market induces a spillover effect on a related, yet distinct, product market, through competitive forces. An amendment to FINRA 2232 requires brokers to explicitly disclose markups charged to retail investors for individual corporate bonds. We predict that corporate bond mutual funds, anticipating a direct price effect of the regulation on individual corporate bond markups, reduce fees charged to retail investors. In a difference-in-differences design, we find that corporate bond mutual funds reduce fees for retail investors relative to institutional investors around the approval of the amendment. Results are more pronounced in corporate bond mutual funds that cater more to retail investors and compete more directly with those individual corporate bonds expected to exhibit the largest reduction in markups. Collectively, evidence suggests transparency regulation can induce spillover effects across related, yet distinct product markets, through competitive forces.