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Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry

Martijn Cremers
Yale School of Management

Joost Driessen
Tilburg University - Department of Finance; CentER Tilburg University

Pascal J. Maenhout
INSEAD - Finance

David Weinbaum
Cornell University - Samuel Curtis Johnson Graduate School of Management


December 2006

Yale ICF Working Paper No. 06-34

Abstract:     
We use a unique database on the ownership stakes and compensation of equity mutual fund directors to analyze whether the directors' incentive structure is related to fund performance. We find that governance plays an economically substantial and statistically significant role. The ownership stakes of both independent and non-independent directors matter for fund performance. Further, the various governance variables interact: funds with high director ownership outperform those with low director ownership only when director compensation is low, and ownership by independent directors only matters when non-independent director ownership is high. We find that funds with high director ownership are better able to continue to perform well than funds with low director ownership. Our results cannot be explained by the previously documented relation between fund governance and mutual fund fees. We also provide evidence that the relation between fund performance and director ownership is not due to directors ex-ante picking the best performing funds.

Working Paper Series

Date posted: March 20, 2005 ; Last revised: November 07, 2008

Suggested Citation

Cremers, Martijn , Driessen, Joost, Maenhout, Pascal J. and Weinbaum, David, Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry (December 2006). Yale ICF Working Paper No. 06-34. Available at SSRN: http://ssrn.com/abstract=686167


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Contact Information

K.J. Martijn Cremers (Contact Author)
Yale School of Management ( email )
135 Prospect Street
New Haven, CT 06520
United States
203-436-0649 (Phone)
203-436-0630 (Fax)
HOME PAGE: http://mba.yale.edu/faculty/profiles/cremers.shtml
Joost Driessen
Tilburg University - Department of Finance ( email )
P.O. Box 90153
5000 LE Tilburg Netherlands
CentER Tilburg University ( email )
P.O. Box 90153
5000 LE Tilburg Netherlands
Pascal J. Maenhout
INSEAD - Finance ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex France
David Weinbaum
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
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