The Impact of Corporate Governance on Closed‐end Funds

Abstract

"This study uses a large sample of UK-listed closed-end funds to examine whether governance has an impact on two indicators of fund performance: the level of fund-management fees and the discount at which a fund trades. Fees are under the control of the directors, and we find that they are inversely related to fund returns, even after allowing for differences across investment sectors. Fees are, on average, higher if a fund has a large board, few directors from outside the fund-family, many directors from within the fund-family, and low ownership by the management company. Discounts for funds are wider if the management company or any blockholder has a significant long-term stake, suggesting that investors are wary of entrenched management. The results suggest that boards are frequently compromised in their duty to shareholders by their dependence on fund-management companies." Copyright 2006 The Authors Journal compilation (c) 2006 Blackwell Publishing Ltd.

Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds

“…Specifically, Barclay, Holderness, and Pontiff (1993) find that CEF discounts are positively related to the aggregate fund shares owned by management and blockholders friendly to management, indicating that fund investors are wary of entrenched management. Gemmill and Thomas (2006) find similar results in a sample of UK CEFs. Coles, Suay, and Woodbury (2000) show that fund discounts are reduced when the compensation of the fund advisor is more sensitive to fund performance.…”

The effects of takeover defenses: Evidence from closed-end funds

“…Governance in the closed-end fund sector has been explored in previous work by Del Guercio, Dann, and Partch (2003) and Gemmill and Thomas (2006). Both of these studies rely on observations from a more limited data set, considering only a single year of governance data.…”

Managerial skill and closed-end fund discounts

“…In the UK market, it is a well-known phenomenon that older funds tend to charge the lowest management fees, in direct contradiction of this model. Gemmill and Thomas (2006) estimate a cross-section regression for the expense ratios of 186 conventional closed-end funds in the UK market on various fund and board characteristics. 1 Both fund age and fund size have highly statistically significant negative coefficients, with a doubling of fund age estimated to subtract about 10% from the expense ratio.…”