Does Governance Travel Across Industries? A Mutual Fund Episode

35 Pages Posted: 12 Mar 2020

See all articles by Yen-Cheng Chang

Yen-Cheng Chang

National Taiwan University - College of Management; National Taiwan University - Center for Research in Econometric Theory and Applications

Kevin Tseng

National Taiwan University - Department of Finance; National Taiwan University - Center for Research in Econometric Theory and Applications

Chia-Yi Yen

Mannheim Business School

Date Written: February 19, 2020

Abstract

We examine whether better-managed mutual funds are at the same time good corporate monitors by exploiting small changes in market capitalizations of firms around the Russell 1000 and 2000 index cutoff. Tracking error concerns force active mutual funds to buy addition stocks moving into Russell 2000. Using a regression discontinuity design, we find that increases in ownership by better-managed mutual funds leads to better overall governance with more independent directors, fewer anti-takeover measures, and more equal voting rights. Firms' operating performance also improve. Our results provide evidence that management knowledge is transmittable across industries.

Keywords: Knowledge Transmission, Return Gap, Corporate Governance, Regression Discontinuity

JEL Classification: G30, G2

Suggested Citation

Chang, Yen-Cheng and Tseng, Kevin and Yen, Chia-Yi, Does Governance Travel Across Industries? A Mutual Fund Episode (February 19, 2020). Available at SSRN: https://ssrn.com/abstract=3540962 or http://dx.doi.org/10.2139/ssrn.3540962

Yen-Cheng Chang (Contact Author)

National Taiwan University - College of Management ( email )

Department and Graduate Institute of Finance
College of Management
Taipei 106
Taiwan

National Taiwan University - Center for Research in Econometric Theory and Applications ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

Kevin Tseng

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

National Taiwan University - Center for Research in Econometric Theory and Applications ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

Chia-Yi Yen

Mannheim Business School ( email )

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