Are Better Governed Funds Better Monitors?

Journal of Corporate Finance, Forthcoming

43 Pages Posted: 21 Aug 2011

See all articles by Julia Chou

Julia Chou

Florida International University

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Qinghai Wang

University of Central Florida - College of Business Administration

Date Written: March 28, 2011

Abstract

Using Morningstar mutual fund stewardship grade data, we find that the governance mechanisms of mutual funds play a key role in their monitoring of portfolio firms and in their investment decisions. Mutual funds with better governance practices tend to vote responsibly on corporate governance proposals of their portfolio firms; they also avoid investing in firms with weak corporate governance and provide superior return performance. The results suggest that funds with quality governance are more likely to act in the interest of their investors, and costs associated with funds' monitoring of their portfolio firms do not adversely affect their return performance.

Keywords: proxy voting, corporate governance, mutual funds

JEL Classification: G11, G23, G34

Suggested Citation

Chou, Wen-Hsiu and Ng, Lilian and Wang, Qinghai, Are Better Governed Funds Better Monitors? (March 28, 2011). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1913430

Wen-Hsiu Chou (Contact Author)

Florida International University ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Qinghai Wang

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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