Board Independence and Mutual Fund Manager Turnover

Abstract

This paper studies the relationship between board independence and manager turnover in the mutual fund industry. Using the Lipper 2003 mutual fund board data, we find that manager turnover is more likely to happen to funds with poor prior performance and more independent boards. Consistent with previous studies such as Tufano and Sevick (1997), our research provides new evidence in support of the Securities and Exchange Commission's approach of improving fund governance by promoting board independence.We would like to thank Dan Bradley for numerous helpful comments and suggestions. We are grateful to Lipper Inc. and Donald Cassidy for providing us with mutual fund governance data. All errors are ours. C 2011, The Eastern Finance Association 621 622 R. Fu and L. Wedge/The Financial Review 46 (2011) 621-641

Independent Directors and Favoritism: When Multiple Board Affiliations Prevail in Mutual Fund Families

“…Prior fund performance is not significant, implying that the director labor market in the mutual fund industry may not be exclusively dependent upon company performance. This result reinforces Fu and Wedge's () finding that mutual fund boards have a high level of stability as even poorly performing funds seldom change board members. The coefficient of Turnover Ratio is significantly positive when the dependent variable is Number of Directorship , indicating that more active funds are associated with a larger number of board affiliations.…”

“…The idea was to encourage boards to be “an independent force in fund affairs rather than a passive affiliate of management.” My third board characteristic is the percentage of independent directors on a fund's board. That is, the percentage of a board's independent directors that have no affiliation with the fund's investment advisory firms (Tufano and Sevick, ; Hermalin and Weisbach, ; Del Guercio et al., ; Hermalin and Weisbach, ; Fu and Wedge, ). Another June 2004 ICA amendment requires that independent directors comprise at least 75% of a mutual fund's board unless the board consists of three directors, in which case the board should have at least two independent directors.…”

“…These perspectives include fee setting (Tufano and Sevick, ; Del Guercio, Dann, and Partch, ; Kuhnen, ; Evans and Fahlenbrach, ), fund performance (Meschke, ; Adams, Mansi, and Nishikawa, ), organizational structure (Ferris and Yan, ), fund mergers (Khorana, Tufano, and Wedge, ), fund scandals (Ferris and Yan, ), fund protection against market timing (Zitzewitz, ), and manager turnover (Dangl, Wu, and Zechner, ; Ding and Wermers, ; Fu and Wedge, ). Ferris, Jagannathan, and Pritchard () and Fich and Shivdasani () examine the issue of multiple board appointments in corporate firms.…”

Does ownership structure affect performance? Evidence from Chinese mutual funds

“…Over the past decade, the corporate governance of mutual fund has achieved prominence both in relation to the developed and emerging markets (see, e.g. Tufano and Sevick 1997;Del et al 2003;Kong and Tang 2008;Adams et al 2010;Ding et al 2010; Fu and Wedge 2011;Calluzzo and Dong 2014;Adams et al 2018;Kurniawan et al 2016). However, only few studies examine the relationship between ownership structure and mutual funds' performance where the focus is on the developed markets.…”

How do the size and independence of the board of trustees affect the financial and sustainable performance of socially responsible mutual funds?

“…As Adams et al () explained, the Investment Company Act of 1940 (the 1940 Act) “specifically charges independent board members with monitoring fund performance on the behalf of fund shareholders”. In the same vein, Fu and Wedge (, p. 622) pointed out that “By the provisions in the 1940 Act, many important decisions regarding the management of mutual funds need to be approved by independent directors, who are deemed to be the watchdogs in safeguarding fund shareholders’ interests”.…”