Abstract
Conflicts of interest among mutual fund managers, fund sponsors, and fund shareholders have attracted attention recently in the popular press and from academics, politicians, and legal experts. However, little is known empirically about the relation between mutual fund returns and mutual fund governance. Our objective is to determine whether better governance leads to improved performance. The authors investigate this relation using Morningstar criteria that measure the effectiveness of governance, traditional portfolio performance measures, and the M2 performance measure. They find that, in general, mutual funds that have better governance grades also have better risk-adjusted returns.
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