Closed-End Funds and Discount Control Mechanisms

Center for Financial Studies Working Paper No. 707, 2023

40 Pages Posted: 2 Feb 2023 Last revised: 13 Apr 2023

See all articles by Roman Kräussl

Roman Kräussl

Bayes Business School (formerly Cass); Hoover Institution, Stanford University

Joshua Matthew Pollet

University of Illinois at Urbana-Champaign - Department of Finance

Denitsa Stefanova

Universite du Luxembourg

Date Written: January 31, 2023

Abstract

The discount control mechanisms that closed-end funds often choose to adopt before IPO are supposedly implemented to narrow the difference between share price and net asset value. We find evidence that non-discretionary discount control mechanisms such as mandatory continuation votes serve as costly signals of information to reveal higher fund quality to investors. Rents of the skill signaled through the announcement of such policies accrue to managers rather than investors as differences in skill are revealed through growing assets under management rather than risk- adjusted performance.

Keywords: Closed-end funds, discount, performance, skill, signaling, information asymmetry, repurchases, continuation vote

JEL Classification: G10, G23

Suggested Citation

Kraeussl, Roman and Pollet, Joshua Matthew and Stefanova, Denitsa, Closed-End Funds and Discount Control Mechanisms (January 31, 2023). Center for Financial Studies Working Paper No. 707, 2023, Available at SSRN: https://ssrn.com/abstract=4345001 or http://dx.doi.org/10.2139/ssrn.4345001

Roman Kraeussl (Contact Author)

Bayes Business School (formerly Cass) ( email )

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

Joshua Matthew Pollet

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 344-4311 (Phone)

Denitsa Stefanova

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

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