Fund governance and style drift

Meinanda Kurniawan, Janice How and Peter Verhoeven

Pacific-Basin Finance Journal, 2016, vol. 40, issue PA, 59-72

Abstract: This paper provides evidence on the effectiveness of fund governance in containing investment style drift in the mutual fund industry. Based on a sample of 273 open-ended U.S. mutual funds with style objectives from 2007 to 2011, we find that funds with better governance exhibit less style drift. Individual governance components, particularly board quality and fees, are highly significant in explaining style drift. Contrary to our expectation, funds with better managerial incentives drift more. Further analysis shows that this positive association is present only at high managerial ownership levels (more than $1 million), suggesting that managers of such funds have more leeway to deviate from their pronounced style in the pursuit of alpha.

Keywords: Mutual funds; Fund governance; Investment style drift (search for similar items in EconPapers)
JEL-codes: G20 G23 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:40:y:2016:i:pa:p:59-72

DOI: 10.1016/j.pacfin.2016.08.006

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