Corporate Governance and Mutual Fund Performance: A First Look at the Morningstar Stewardship Grades
Jay W. Wellman
Cornell University School of Hotel Administration
University of Hawaii at Manoa
March 18, 2008
This paper documents for the first time the relationship between mutual fund governance and mutual fund performance. Using the first release of the Morningstar Stewardship Grades on August 24, 2004, we find that funds receiving good grades outperformed funds with bad grades by 19 to 23 basis points per month over 1/2001-7/2004 and by 10 to 16 basis points per month over 9/2004-12/2006. In an examination of daily fund flows subsequent to the announcement date, we see evidence that investors sold funds with poor grades and bought funds with good grades. Of the five variables Morningstar uses to compute their grades, the Board Quality and Fees variables shows the most explanatory power. These results broadly support the main conclusion of Gompers, Ishii and Metrick (2003 QJE), namely that corporate governance significantly affects performance.
Number of Pages in PDF File: 33
Keywords: Mutual Funds, Governance, Performance
JEL Classification: G11, G23, G34working papers series
Date posted: March 22, 2008
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