Mutual Fund Fees, Performance, and Governance Structure in Canada

Abstract

Taking advantage of the unique Canadian setting where two governance mechanisms coexist, this study empirically examines the impact of the presence of the board of directors, as an internal governance mechanism, on fees and performance of mutual funds. Furthermore, the impact of the board structure on fees and performance of corporate class funds is also analyzed. We find that corporate class funds, which have a separate board of directors for the fund, charge higher fees than trust funds. However, corporate class funds deliver superior performance that more than compensate for their higher fees. For corporate class funds, we find that a board with smaller size, CEO duality, and higher percentage of independent directors is more likely to charge lower fees. In addition, more independent boards are strongly associated with higher fee-adjusted performance. Our study provides valuable guidelines for Canadian investors and regulatory agencies.