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Fund governance and style drift

Author

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  • Kurniawan, Meinanda
  • How, Janice
  • Verhoeven, Peter

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.

Suggested Citation

  • Kurniawan, Meinanda & How, Janice & Verhoeven, Peter, 2016. "Fund governance and style drift," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 59-72.
    • Handle: RePEc:eee:pacfin:v:40:y:2016:i:pa:p:59-72
    DOI: 10.1016/j.pacfin.2016.08.006
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    Cited by:

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    2. Emmanuel Mamatzakis & Bingrun Xu, 2021. "Does ownership structure affect performance? Evidence from Chinese mutual funds," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1399-1435, May.
    3. Chua, Angeline Kim Pei & Tam, On Kit, 2020. "The shrouded business of style drift in active mutual funds," Journal of Corporate Finance, Elsevier, vol. 64(C).
    4. Adiya Bayarmaa & Guglielmo Maria Caporale, 2019. "Style consistency and mutual fund returns: the case of Russia," CESifo Working Paper Series 7605, CESifo.
    5. Sha, Yezhou, 2020. "The devil in the style: Mutual fund style drift, performance and common risk factors," Economic Modelling, Elsevier, vol. 86(C), pages 264-273.
    6. Zamri Ahmad & Haslindar Ibrahim & Jasman Tuyon, 2018. "Governance of Behavioural Biases in Asset Management Industry: Insights from Fund Managers in Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 14(2), pages 65-102.

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    More about this item

    Keywords

    Mutual funds; Fund governance; Investment style drift;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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