Affiliated Agents, Boards of Directors, and Mutual Fund Securities Lending Returns

53 Pages Posted: 22 Oct 2011 Last revised: 15 Nov 2014

John C. Adams

University of Texas at Arlington

Sattar Mansi

Virginia Tech

Takeshi Nishikawa

University of Colorado at Denver

Date Written: February 18, 2013

Abstract

Prior SEC inquiries concerning self-dealing in securities lending programs suggest potential conflicts of interest when funds employ lending agents that are affiliated with their sponsor. We posit that the level of self-dealing is potentially greater, and mutual funds’ securities lending returns are lower, when funds employ sponsor affiliated lending agents. Using a manually collected U.S. index mutual fund sample, we find that funds with sponsor affiliated lending agents have lower annual returns on lent securities and that securities lending returns are significantly higher when funds administer their own lending programs. We also find that mutual funds boards of directors provide a monitoring role in the securities lending market. Specifically, we document that multiple board of director appointments, more director fund ownership, higher board independence, and lower excess director compensation are associated with higher lending returns. Overall, the evidence has implications for mutual fund boards as they consider lending proposals from affiliated agents and for future regulatory actions.

Keywords: equity lending, securities lending, mutual funds, index funds, affiliated agents, board structure

JEL Classification: G34, G32, G20

Suggested Citation

Adams, John C. and Mansi, Sattar and Nishikawa, Takeshi, Affiliated Agents, Boards of Directors, and Mutual Fund Securities Lending Returns (February 18, 2013). Journal of Financial Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1947503 or http://dx.doi.org/10.2139/ssrn.1947503

John C. Adams (Contact Author)

University of Texas at Arlington ( email )

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

Sattar Mansi

Virginia Tech ( email )

Takeshi Nishikawa

University of Colorado at Denver ( email )

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

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