Do Funds Need Governance? Evidence from Variable Annuity-Mutual Fund Twins

Richard Evans and Ruediger Fahlenbrach
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Richard Evans: U of Virginia

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We study the roles of traditional governance (boards, sponsors, etc.) and market governance (investors voting with their feet) in mutual funds and variable annuities. We find that market governance is less pronounced for variable annuity investors. Using a matched sample of variable annuity-mutual fund twins, we find that variable annuity investors are less sensitive to poor performance and high fees than mutual fund investors. Given the weaker role played by market governance, we then examine the role played by traditional governance in variable annuities. Variable annuity boards and sponsors add alternative investment options and replace advisors on behalf of their investors after poor performance and high fees. These traditional governance mechanisms are, however, less effective when conflicts of interest exist between variable annuity sponsors and fund advisors.

JEL-codes: G22 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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