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The Corporate Governance Premium, Returns, and Mutual Funds

Authors

  • Julia Chou,

    1. Florida International University
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  • William G. Hardin III

    Corresponding author
    1. Florida International University
      Florida International University - Finance and Real Estate, 11200 SW 8th Street, RB-208, Miami Florida 33199; Phone: (305) 348-0107; Fax: (305) 348-4182; E-mail: hardinw@fiu.edu.
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  • We would like to thank the editor (Bonnie Van Ness) as well as the reviewers for helpful comments.

Florida International University - Finance and Real Estate, 11200 SW 8th Street, RB-208, Miami Florida 33199; Phone: (305) 348-0107; Fax: (305) 348-4182; E-mail: hardinw@fiu.edu.

Abstract

Mutual funds with a preference for strong corporate governance (CG) have performance similar to mutual funds with a preference for weak CG. We find a direct relation between overall mutual fund CG preference and the corporate governance premium (CGP). Furthermore, the investment preferences of mutual funds forecast the change in the CGP. We provide evidence that the investment activities of institutional investors can affect stock performance, and that shifts by institutional investors in CG preference impact the appearance of the CGP.

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