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Directors’ Ownership and Closed-End Fund Discounts

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  • Yongchun Ju

    ()

  • Linying Zhao

    ()

Abstract

This paper investigates whether ownership by independent directors could provide them with effective monitoring incentives and thus help reduce discounts in the closed-end fund industry. We find that after controlling for fund observed and unobserved characteristics with the latter proxied by fund fixed effects, independent directors’ ownership is negatively related to fund discounts. We further find that funds whose independent directors have larger ownership are more likely to employ appropriate measures to reduce fund discounts, such as buying back outstanding shares, adopting managed distribution plans (MDPs) if they do not have such plans in place, or increasing the minimum payout targets under their existing MDPs. These findings may imply that independent directors become better monitors when they have larger ownership in the funds they oversee and are thus more diligent in taking actions to diminish discounts. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Yongchun Ju & Linying Zhao, 2014. "Directors’ Ownership and Closed-End Fund Discounts," Journal of Financial Services Research, Springer;Western Finance Association, vol. 45(2), pages 241-269, April.
  • Handle: RePEc:kap:jfsres:v:45:y:2014:i:2:p:241-269
    DOI: 10.1007/s10693-012-0156-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Closed-end fund; Discount; Directors’ ownership; Repurchase; Managed distribution plan; Termination; G34;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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