The Impact of Corporate Governance Structure on Mutual Fund Fees

Abstract

The purpose of this study is to analyze the impact of corporate governance structure as measured by board composition, ownership structure and audit committee quality on mutual fund fees. The panel data for the period of 2007-2012 is used for all open and close end funds registered with Mutual Fund Association of Pakistan (MUFAP). Generalized least square (GLS) random effect model is used to measure the impact of governance structure on mutual fund fees. The results of this study indicates that board composition i.e. smaller board, high proportion of independent directors, independent chairman, low proportion of insider and directors from asset management on the board act as effective governance mechanism and mitigate conflict of interest between managers and investors. High managerial ownership and external block-holders ownership enhance fund governance and discourage managers to charge high fee from investors. This study also analyze the audit committee quality by presence of independent directors in audit committee and find that disclosure of fund all expenditures become more transparent to investor if more independent directors in audit committee. The findings of this study suggest that funds gain experience with age and become more efficient in managing their cost due to economies of scale. This study provides evidence that fund fee declined with average increase in fund size. Results show that income funds, index funds, money market fund and fund of funds have low fees as compare to equity and asset allocation funds. Overall, this study explores that mutual funds with good corporate governance structure perform their fiduciary duties and act in the best interests of their shareholders.