Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry

41 Pages Posted: 20 Mar 2005  

Martijn Cremers

University of Notre Dame

Joost Driessen

Tilburg University - Department of Finance; CentER Tilburg University

Pascal J. Maenhout

INSEAD - Finance

David Weinbaum

Syracuse University

Date Written: December 2006

Abstract

We use a unique database on the ownership stakes and compensation of equity mutual fund directors to analyze whether the directors' incentive structure is related to fund performance. We find that governance plays an economically substantial and statistically significant role. The ownership stakes of both independent and non-independent directors matter for fund performance. Further, the various governance variables interact: funds with high director ownership outperform those with low director ownership only when director compensation is low, and ownership by independent directors only matters when non-independent director ownership is high. We find that funds with high director ownership are better able to continue to perform well than funds with low director ownership. Our results cannot be explained by the previously documented relation between fund governance and mutual fund fees. We also provide evidence that the relation between fund performance and director ownership is not due to directors ex-ante picking the best performing funds.

Suggested Citation

Cremers, Martijn and Driessen, Joost and Maenhout, Pascal J. and Weinbaum, David, Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry (December 2006). Yale ICF Working Paper No. 06-34. Available at SSRN: https://ssrn.com/abstract=686167

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Joost Driessen

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

CentER Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Pascal J. Maenhout

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

David Weinbaum

Syracuse University ( email )

Syracuse, NY
United States

Paper statistics

Downloads
1,512
Rank
8,735
Abstract Views
8,106