Does Governance Affect the Performance of Closed-End Funds?

Abstract

Conventional companies are heterogeneous and it is difficult to identify whether governance affects their performance. Closed-end funds are companies with clear objectives, allowing governance effects to be revealed. We find that, for the 331 funds listed in London, returns are negatively related to expense ratios. In turn, expense ratios are higher for funds which have large boards, less outside directors and low ownership by the managers. The main conclusion is that companies with small boards and more outside directors perform better. Ownership by the managers has a mixed impact: while it leads to better control of expenses, it also reduces the market-to-book premium. Unlike most other studies, our results are largely consistent with agency theory and provide empirical support for codes of conduct on corporate governance.