Internal Governance Mechanisms and Operational Performance: Evidence from Index Mutual Funds

35 Pages Posted: 10 Mar 2009 Last revised: 19 Jun 2012

John C. Adams

University of Texas at Arlington

Sattar Mansi

Virginia Tech

Takeshi Nishikawa

University of Colorado at Denver

Date Written: 2010

Abstract

We provide new evidence linking board characteristics and performance. We employ a sample of index funds to isolate the operational component of performance, thereby minimizing investment policy effects in our performance measures. Using manually collected governance data from the mutual fund industry covering the period from 1998 to 2007, we find an inverse relation between board size and fund performance. We also find evidence supporting our hypotheses that organizational form (whether the fund sponsor is publicly or privately held) as an internal governance mechanism plays an important role in determining operational performance. Specifically, we find that board size, the presence of fund sponsor officers, and boards comprised of all independent directors are related to operational performance when the sponsor is publicly held. For privately held firms, board structure is insignificantly related to performance. Overall, the results are consistent with the notion that there may not be a single optimal board structure that is applicable to all funds, attempts to regulate board attributes should be considered with caution, and sponsor level factors are important board structure considerations.

Keywords: Mutual funds, Board structure, Organizational Structure

JEL Classification: G34, G32, G20

Suggested Citation

Adams, John C. and Mansi, Sattar and Nishikawa, Takeshi, Internal Governance Mechanisms and Operational Performance: Evidence from Index Mutual Funds (2010). Review of Financial Studies, Vol. 23, No. 3, 2010. Available at SSRN: https://ssrn.com/abstract=1356364 or http://dx.doi.org/10.2139/ssrn.1356364

John C. Adams

University of Texas at Arlington ( email )

Box 19449 UTA
Arlington, TX 76019
United States
904-476-2946 (Phone)

Takeshi Nishikawa

University of Colorado at Denver ( email )

Box 173364
1250 14th Street
Denver, CO 80217
United States

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