| This paper examines corporate governance issues in the context of the mutual fund industry, with a particular emphasis on monitoring and control mechanisms. Unlike industrial firms, mutual fund companies face relatively weaker markets for corporate control. However, product market competition tends to play a much more important role in complementing other control mechanisms. Since fund management fees are largely a function of the total market value of the underlying portfolio, investors can presumably monitor and discipline managers by redeeming shares out of a particular fund or reward managers by putting in additional money. This paper examines the determinants of fund shareholders' investment and redemption decisions, especially the impact of a fund's load structure. The above issues are examined using a unique data set of managerial turnovers for over 1,700 equity mutual funds during 1977–1996. I find that transaction costs, particularly the loads charged by funds when investors get into or out of a fund, affect investors' mobility, and thus their ability to discipline managers. I also find that capital gain overhang discourages investors from redeeming their shares. Managerial turnover seems to be more performance sensitive for no-load funds. The analysis further suggests that managerial turnover is more sensitive in recent years than in the 1980s, indicating increased competition in the mutual fund industry. |
