MUTUAL FUND GOVERNANCE AND FUND PERFORMANCE

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Abstract

The increased wealth invested in mutual funds and recent scandals at many fund firms have led to increased scrutiny of mutual fund governance. We examine measures of the strength of mutual fund governance and the relation of these measures to fund performance. We utilize the Morningstar Stewardship Grade and its determining factors to measure the quality of a fund’s governance and the information ratio to measure risk adjusted performance. We find that strong corporate governance is associated with better risk-adjusted performance, after controlling for investment objective, expenses, and fund size. The key governance components related to performance are board quality, managerial incentives, and fees. Our results support the notion that, in the mutual fund industry, good governance is consistent with good performance.

Keyword: Corporate Governance, Mutual Funds, Stewardship, Performance

How to cite this paper: Trahan, E. A. (2008). Mutual fund governance and fund performance. Corporate Ownership & Control, 5(4-3), 384-392. https://doi.org/10.22495/cocv5i4c3p5