Abstract
The executives of publicly traded firms often sit on mutual fund boards. This paper provides empirical evidence about the influence these executives exert on the investment decisions of the fund. It shows that funds concentrate their holdings in, and trade informatively in, the stock of the executive's firm. Funds hold approximately 50 percent larger stakes in the executive's firm. These results are robust to controlling for fund and firm specific factors. Furthermore, when the fund purchases the stock of the executive's firm, the stock on average earns an abnormal return of 2.07 percentage points over the following quarter. When the firm sells the stock of the executive's firm, the stock on average underperforms by 3.76 percentage points over the following quarter. These results suggest that the influence of fund directors extends beyond their formal monitoring responsibilities.
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