Is "voting with your feet" an effective mutual fund governance mechanism?
AbstractInvestors in open-end mutual funds can vote with their feet by withdrawing assets from or adding assets to these funds. This paper assesses the effectiveness of this market discipline mechanism by investigating whether voting with the feet prevents the abusive practices that led to the 2003-2004 trading scandals. The research results indicate that funds with higher flow sensitivity--that is, a higher density of vigilant clients--have lower arbitrage potential and fewer abnormal flows, which in turn implies less opportunistic trading. As a result, these funds have a lower probability of being implicated in scandals. These findings suggest that investor ability to withdraw assets from or add assets to the funds is an effective mutual fund governance mechanism. In funds with less sophisticated investors who cannot use this option, other means of governance are especially important.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Corporate Finance.
Volume (Year): 17 (2011)
Issue (Month): 1 (February)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jcorpfin
Investor vigilance Flow sensitivity Trading practice Market discipline;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lu Zheng, 1999. "Is Money Smart? A Study of Mutual Fund Investors' Fund Selection Ability," Journal of Finance, American Finance Association, vol. 54(3), pages 901-933, 06.
- Thomas Dangl & Youchang Wu & Josef Zechner, 2008. "Market Discipline and Internal Governance in the Mutual Fund Industry," Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2307-2343, September.
- Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
- Qi Chen & Itay Goldstein & Wei Jiang, 2008. "Directors' Ownership in the U.S. Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 63(6), pages 2629-2677, December.
- Susan E. K. Christoffersen & David K. Musto, 2002.
"Demand Curves and the Pricing of Money Management,"
Review of Financial Studies,
Society for Financial Studies, vol. 15(5), pages 1499-1524.
- James, Christopher & Karceski, Jason, 2006. "Investor monitoring and differences in mutual fund performance," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2787-2808, October.
- Ferris, Stephen P. & Yan, Xuemin (Sterling), 2007. "Do independent directors and chairmen matter? The role of boards of directors in mutual fund governance," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 392-420, June.
- Smith, Janet Kiholm, 2007. "Evaluating the boundaries of SEC regulation," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 189-194, June.
- William Goetzmann & Zoran Ivkovich & K. Rouwenhorst, 2000.
"Day Trading International Mutual Funds: Evidence And Policy Solutions,"
Yale School of Management Working Papers
ysm138, Yale School of Management, revised 01 Jun 2001.
- Goetzmann, William N. & Ivković, Zoran & Rouwenhorst, K. Geert, 2001. "Day Trading International Mutual Funds: Evidence and Policy Solutions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(03), pages 287-309, September.
- Edelen, Roger M. & Warner, Jerold B., 2001. "Aggregate price effects of institutional trading: a study of mutual fund flow and market returns," Journal of Financial Economics, Elsevier, vol. 59(2), pages 195-220, February.
- Harold Mulherin, J., 2007. "Measuring the costs and benefits of regulation: Conceptual issues in securities markets," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 421-437, June.
- Martijn Cremers & Joost Driessen & Pascal Maenhout & David Weinbaum, 2005.
"Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry,"
Yale School of Management Working Papers
amz2470, Yale School of Management, revised 01 Nov 2008.
- Cremers, Martijn & Driessen, Joost & Maenhout, Pascal & Weinbaum, David, 2009. "Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(06), pages 1345-1373, December.
- Eric Zitzewitz, 2006.
"How Widespread Was Late Trading in Mutual Funds?,"
American Economic Review,
American Economic Association, vol. 96(2), pages 284-289, May.
- Ippolito, Richard A, 1992. "Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 45-70, April.
- Khorana, Ajay & Tufano, Peter & Wedge, Lei, 2007. "Board structure, mergers, and shareholder wealth: A study of the mutual fund industry," Journal of Financial Economics, Elsevier, vol. 85(2), pages 571-598, August.
- Del Guercio, Diane & Dann, Larry Y. & Partch, M. Megan, 2003. "Governance and boards of directors in closed-end investment companies," Journal of Financial Economics, Elsevier, vol. 69(1), pages 111-152, July.
- Rahul Bhargava & Ann Bose & David A. Dubofsky, 1998. "Exploiting International Stock Market Correlations with Open-end International Mutual Funds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 765-773.
- Tufano, Peter & Sevick, Matthew, 1997. "Board structure and fee-setting in the U.S. mutual fund industry," Journal of Financial Economics, Elsevier, vol. 46(3), pages 321-355, December.
- Helwege, Jean & Intintoli, Vincent J. & Zhang, Andrew, 2012. "Voting with their feet or activism? Institutional investors’ impact on CEO turnover," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 22-37.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.