Mutual Fund Flows, Performance Persistence, and Board Quality

40 Pages Posted: 22 Mar 2009

See all articles by Sandy Lai

Sandy Lai

University of Hong Kong

Ashish Tiwari

University of Iowa

Zhe Zhang

Singapore Management University - Lee Kong Chian School of Business

Date Written: March 18, 2009

Abstract

This paper provides evidence on the impact of fund board quality on (a) the fund flow-performance relation, (b) persistence in fund performance, and (c) a fund's potential change of strategy following a period of underperformance. We use Morningstar's board quality ratings as a proxy for the quality of the fund's board and document three main results. One, we show that funds that rank in the bottom quintile of rankings based on past performance, experience significantly lower flows at the margin when their board quality rating is poor compared to when the board quality is rated as good. Two, we document a significant relationship between board quality and short-term performance persistence. For funds with bad boards, a negative past alpha predicts future negative alpha but the evidence of positive performance persistence is much weaker than for funds with good boards. Three, we show that a change in fund strategy following poor performance is more likely for funds with good boards compared to funds with bad boards. Our results suggest that measures of fund board quality contain valuable information with regard to a fund's incentives and strategy choice and hence are potentially useful for investor decision making.

Keywords: mutual fund flows, performance persistence, fund board quality

JEL Classification: G14, G20

Suggested Citation

Lai, Sandy and Tiwari, Ashish and Zhang, Zhe, Mutual Fund Flows, Performance Persistence, and Board Quality (March 18, 2009). Available at SSRN: https://ssrn.com/abstract=1362473 or http://dx.doi.org/10.2139/ssrn.1362473

Sandy Lai

University of Hong Kong ( email )

Faculty of Business and Economics
K.K. Leung Building, Pokfulam Road
Hong Kong, Pokfulam HK
Hong Kong

Ashish Tiwari

University of Iowa ( email )

Finance Department
Henry B. Tippie College of Business, 108 PBB
Iowa City, IA 52242
United States
(319) 353-2185 (Phone)
(319) 335-3690 (Fax)

HOME PAGE: https://tippie.uiowa.edu/people/ashish-tiwari

Zhe Zhang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

Lee Kong Chian School of Business
50 Stamford Road
Singapore, 178899
Singapore

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