Fund Management Structure and Conflicts of Interest: Evidence from Business Development Companies

52 Pages Posted: 5 Jun 2020 Last revised: 10 Nov 2020

See all articles by Theodosis L. Kallenos

Theodosis L. Kallenos

University of Cyprus-School of Economics and Management- Department of Accounting and Finance

George Nishiotis

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance

Date Written: October 20, 2020

Abstract

Using the universe of Business Development Companies for the period 2006-17, we analyze the effects of fund management structure on managerial decisions and fund premiums. We show that externally managed funds trade at significantly higher discounts relative to their internally managed counterparts and they are 74% (67%) less likely to announce (execute) value enhancing share repurchase programs. We further find a significantly higher positive market reaction to share repurchase announcements of externally relative to internally managed funds. Overall, we show the benefits of internal management structure in avoiding agency costs associated with the dependence of managerial compensation on total assets.

Keywords: Fund Management Structure, Agency Costs, Share Repurchases, Portfolio Performance, Business Development Companies

JEL Classification: G2, G3, G14

Suggested Citation

Kallenos, Theodosis L. and Nishiotis, George P., Fund Management Structure and Conflicts of Interest: Evidence from Business Development Companies (October 20, 2020). Available at SSRN: https://ssrn.com/abstract=3598510 or http://dx.doi.org/10.2139/ssrn.3598510

Theodosis L. Kallenos

University of Cyprus-School of Economics and Management- Department of Accounting and Finance ( email )

1 University Avenue
P.O. Box 20537
Nicosia, CY-1678
Cyprus
+35722893628 (Phone)
+35722895475 (Fax)

George P. Nishiotis (Contact Author)

University of Cyprus-Faculty of Economics and Management-Department of Accounting and Finance ( email )

Cyprus

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