An Empirical Examination of Mutual Fund Boards

Felix Meschke ()
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Felix Meschke: University of Kansas, School of Business, 1654 Naismith Drive, Lawrence, KS 66045, USA

Quarterly Journal of Finance (QJF), 2019, vol. 09, issue 04, 1-35

Abstract: This paper examines how board independence and director incentives in the mutual fund industry affect fund expenses, performance, and compliance. It is based on a hand-collected panel dataset of mutual fund governance characteristics from 1995 through 2004, which covers about 60% of assets listed in the CRSP mutual fund database. The results show that funds overseen by an independent chair charge fees that are 12 basis points lower and that the fraction of independent directors is associated with higher fees during the earlier part of the sample and with lower fees during the latter part. Both measures of board independence are associated with lower fund performance, although funds with higher director ownership and lower unexplained compensation charge lower fees and deliver higher returns. Fund board characteristics do not seem to affect the likelihood of litigation by regulators and shareholders. These results suggest that fund investors do not necessarily benefit from greater board independence if boards negotiate low fees without closely evaluating fund performance. In contrast, higher director ownership and relatively low compensation seem to align incentives between fund boards and investors.

Keywords: Board of directors; governance; mutual funds; Securities and Exchange Commission (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:qjfxxx:v:09:y:2019:i:04:n:s2010139219500150

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DOI: 10.1142/S2010139219500150

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