Are Better Governed Funds Better Monitors?
Journal of Corporate Finance, Forthcoming
43 Pages Posted: 21 Aug 2011
Date Written: March 28, 2011
Using Morningstar mutual fund stewardship grade data, we find that the governance mechanisms of mutual funds play a key role in their monitoring of portfolio firms and in their investment decisions. Mutual funds with better governance practices tend to vote responsibly on corporate governance proposals of their portfolio firms; they also avoid investing in firms with weak corporate governance and provide superior return performance. The results suggest that funds with quality governance are more likely to act in the interest of their investors, and costs associated with funds' monitoring of their portfolio firms do not adversely affect their return performance.
Keywords: proxy voting, corporate governance, mutual funds
JEL Classification: G11, G23, G34
Suggested Citation: Suggested Citation