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Are better governed funds better monitors?

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  • Chou, Julia
  • Ng, Lilian
  • Wang, Qinghai

Abstract

Using Morningstar mutual fund stewardship grade data, we find that the governance mechanisms of mutual funds play a key role in their monitoring of portfolio firms and in their investment decisions. Mutual funds with better governance practices tend to vote responsibly on corporate governance proposals of their portfolio firms and also provide better return performance. Furthermore, these funds tend to avoid investing in poorly governed firms. The results suggest that funds with quality governance are more likely to act in the interest of their investors, and that costs associated with funds' monitoring of their portfolio firms do not adversely affect their return performance.

Suggested Citation

  • Chou, Julia & Ng, Lilian & Wang, Qinghai, 2011. "Are better governed funds better monitors?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1254-1271.
  • Handle: RePEc:eee:corfin:v:17:y:2011:i:5:p:1254-1271
    DOI: 10.1016/j.jcorpfin.2011.06.008
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    References listed on IDEAS

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    Cited by:

    1. Cumming, Douglas & Dai, Na & Haß, Lars Helge & Schweizer, Denis, 2012. "Regulatory induced performance persistence: Evidence from hedge funds," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1005-1022.
    2. repec:bla:irvfin:v:16:y:2016:i:4:p:525-563 is not listed on IDEAS
    3. Calluzzo, Paul & Dong, Gang Nathan, 2014. "Fund governance contagion: New evidence on the mutual fund governance paradox," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 83-101.
    4. Nain, Amrita & Yao, Tong, 2013. "Mutual fund skill and the performance of corporate acquirers," Journal of Financial Economics, Elsevier, vol. 110(2), pages 437-456.
    5. Ding, Rong & Hou, Wenxuan & Kuo, Jing-Ming & Lee, Edward, 2013. "Fund ownership and stock price informativeness of Chinese listed firms," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 166-185.
    6. Kurniawan, Meinanda & How, Janice & Verhoeven, Peter, 2016. "Fund governance and style drift," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 59-72.
    7. repec:eee:quaeco:v:67:y:2018:i:c:p:121-137 is not listed on IDEAS
    8. Jackowicz, Krzysztof & Kowalewski, Oskar, 2012. "Crisis, internal governance mechanisms and pension fund performance: Evidence from Poland," Emerging Markets Review, Elsevier, vol. 13(4), pages 493-515.

    More about this item

    Keywords

    Proxy voting; Corporate governance; Mutual funds;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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