Corporate and Mutual-Fund Overlapping Directors and Shareholder Satisfaction

Abstract

Prior studies have shown that mutual funds benefit from personal connections to companies. Consequently, non-connected funds may be at a disadvantage. We document that both connected funds, which share a director with the company, and non-connected funds, which do not, are particularly satisfied with a director serving simultaneously on at least one corporate and one mutual fund board (“overlapping director”). Funds are more supportive of overlapping directors relative to other corporate directors serving on the same boards, and also during the period a director is an overlapping director, but not before or after that period; these findings support a causal relation. Mutual funds are particularly supportive of overlapping directors when monitoring is needed, a finding that suggests that the overlapping directors’ appeal to mutual funds reflects their ability to monitor. We do not find that all shareholders are supportive of overlapping directors. This result suggests that overlapping directors are particularly able to represent the perspectives and interests of mutual fund shareholders, but not necessarily those of other types of shareholders. Overall, our findings indicate that the monitoring expertise offered by overlapping directors to all fund-shareholders exceed the cost—connected funds are more informed about future returns.

Keywords: overlapping directors, interlocking boards, busy directors, mutual funds, shareholder votes, boards, directors

JEL Classification: G3, L20