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The Impact of Corporate Governance on Closed-end Funds


  • The authors acknowledge the helpful comments of John Doukas (the editor), an anonymous referee, participants at the EFMA Symposium on Corporate Governance at Leeds (2005) and the EFMA Annual Conference at Basel (2004), Andy Adams, Diane Denis and seminar participants at the Cass Business School. DT also thanks Oliviero Roggi (University of Florence) for assistance with an early draft of this paper.


This study uses a large sample of UK-listed closed-end funds to examine whether governance has an impact on two indicators of fund performance: the level of fund-management fees and the discount at which a fund trades. Fees are under the control of the directors, and we find that they are inversely related to fund returns, even after allowing for differences across investment sectors. Fees are, on average, higher if a fund has a large board, few directors from outside the fund-family, many directors from within the fund-family, and low ownership by the management company. Discounts for funds are wider if the management company or any blockholder has a significant long-term stake, suggesting that investors are wary of entrenched management. The results suggest that boards are frequently compromised in their duty to shareholders by their dependence on fund-management companies.