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The Impact of Corporate Governance on Closed‐end Funds

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  • Gordon Gemmill
  • Dylan C. Thomas

Abstract

This study uses a large sample of UK‐listed closed‐end funds to examine whether governance has an impact on two indicators of fund performance: the level of fund‐management fees and the discount at which a fund trades. Fees are under the control of the directors, and we find that they are inversely related to fund returns, even after allowing for differences across investment sectors. Fees are, on average, higher if a fund has a large board, few directors from outside the fund‐family, many directors from within the fund‐family, and low ownership by the management company. Discounts for funds are wider if the management company or any blockholder has a significant long‐term stake, suggesting that investors are wary of entrenched management. The results suggest that boards are frequently compromised in their duty to shareholders by their dependence on fund‐management companies.

Suggested Citation

  • Gordon Gemmill & Dylan C. Thomas, 2006. "The Impact of Corporate Governance on Closed‐end Funds," European Financial Management, European Financial Management Association, vol. 12(5), pages 725-746, November.
    • Handle: RePEc:bla:eufman:v:12:y:2006:i:5:p:725-746
    DOI: 10.1111/j.1468-036X.2006.00274.x
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    Cited by:

    1. Michael Bleaney & R. Todd Smith, 2013. "Excess volatility and closed‐end fund discounts," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 12(2), pages 165-179, May.
    2. Souther, Matthew E., 2016. "The effects of takeover defenses: Evidence from closed-end funds," Journal of Financial Economics, Elsevier, vol. 119(2), pages 420-440.
    3. Youchang Wu & Russ Wermers & Josef Zechner, 2016. "Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds," Review of Financial Studies, Society for Financial Studies, vol. 29(12), pages 3428-3470.
    4. Souther, Matthew E., 2018. "The effects of internal board networks: Evidence from closed-end funds," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 266-290.
    5. Kryzanowski, Lawrence & Mohebshahedin, Mahmood, 2016. "Board governance, monetary interest, and closed-end fund performance," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 196-217.
    6. Michael Bleaney & R. Todd Smith, 2008. "Risk, Managerial Skill and Closed-End Fund Discounts," Discussion Papers 08/10, University of Nottingham, School of Economics.

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