Are multiple share class funds poorly governed?
DOI:
https://doi.org/10.61190/fsr.v28i1.3415Keywords:
Investor protection, Shareholders, Corporate governance, SEC, Mutual fundAbstract
Utilizing independent Morningstar Stewardship Grades, this article finds that multiple share class mutual funds (MS funds) have lower quality governance. Ordered probit regressions indicate MS funds are more likely to have lower board quality ratings and managerial incentive ratings, additional evidence the MS structure has not provided the benefits initially put forth by supporters. The results continue to demonstrate that less sophisticated investors seeking financial advice (those typically utilizing MS funds) may potentially be directed to funds that underperform and have higher costs.
Downloads
References
Alexander, G. J., Jones, J. D., & Nigro, P. J. (1998). Mutual fund shareholders: Characteristics, investor knowledge, and sources of information. Financial Services Review, 7, 301-316. https://doi.org/10.1016/S1057-0810(99)00023-2
Barber, B. M., Odean, T., & Zheng, L. (2005). Out of sight, out of mind: The effects of expenses on mutual fund flows. Journal of Business, 78, 2095-2120. https://doi.org/10.1086/497042
Bergstresser, D., Chalmers, J. M. R., & Tufano, P. (2009). Assessing the costs and benefits of brokers in the mutual fund industry. The Review of Financial Studies, 22, 4129 - 4156. https://doi.org/10.1093/rfs/hhp022
Cao, J., Ghosh, A., Goh, J., & Ng, S. (2014). Governance Matter: Morningstar Stewardship Grades and Mutual Fund Performance. Working Paper, Singapore Management University.
Capon, N., Fitzsimons, G. J., & Prince, R. A. (1996). An individual level analysis of the mutual fund investment decision. Journal of Financial Services Research, 10, 59 - 82. https://doi.org/10.1007/BF00120146
Chou, J., Ng, L., & Wang, Q. (2011). Are better governed funds better monitors? Journal of Corporate Finance, 17, 1254 -1271. https://doi.org/10.1016/j.jcorpfin.2011.06.008
Fact Sheet. (2006). The Morningstar Stewardship Grade for Funds. (available at https://quicktake.morningstar.com/DataDefs/StewGradeMethodology.pdf).
Handy, J., Nichols, H., & Smythe, T. (2018). Should investors care about mutual fund governance quality?: Evidence from Morningstar stewardship ratings. The Journal of Wealth Management, 21, 44 -58. https://doi.org/10.3905/jwm.2018.1.065
Jones, M. A., Lesseig, V. P., & Smythe, T. I. (2005a). Financial advisors and mutual fund selection. Journal of Financial Planning, 18, 64 -70.
Jones, M. A., Lesseig, V. P., & Smythe, T. I. (2005b). Financial advisors and multiple share class mutual funds. Financial Services Review, 14, 1-20. https://doi.org/10.61190/fsr.v14i1.4810
Lesseig, V. P., Long, D. M., & Smythe, T. I. (2002). Gains to mutual fund sponsors offering multiple share class funds. Journal of Financial Research, 25, 81-98. https://doi.org/10.1111/1475-6803.00005
Livingston, M., & O'Neal, E. S. (1998). The cost of mutual fund distribution fees. Journal of Financial Research, 21, 205-218. https://doi.org/10.1111/j.1475-6803.1998.tb00680.x
Moore, S., & Porter, G. E. (2017). Can investors benefit from using Morningstar's stewardship grades? Journal of Accounting and Finance, 17, 130.
Nanda, V. K., Wang, Z. J., & Zheng, L. (2009). The ABCs of mutual funds: On the introduction of multiple share classes. Journal of Financial Intermediation, 18, 329 -361. https://doi.org/10.1016/j.jfi.2008.12.003
Nofsinger, J. R., & Varma, A. (2007). How analytical is your financial advisor? Financial Services Review, 16, 245-260. https://doi.org/10.61190/fsr.v16i4.4895
O'Neal, E. S. (1999). Mutual fund share classes and broker incentives. Financial Analysts Journal, September- October, 76 - 87. https://doi.org/10.2469/faj.v55.n5.2302
Securities and Exchange Commission Rule 18f-3 Adoption Release, Release No. 33-7143, IC-20915, 1995.
Downloads
Published
Issue
Section
License
Copyright (c) 2019 Academy of Financial Services
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.
This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.
