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An Empirical Examination of Sponsor Influence over the Board of Directors

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  • Raj Varma

Abstract

Investment funds have a unique organization structure in which a fund's board of directors frequently contracts the management of the fund with the fund's sponsor but has a fiduciary duty to act in the interest of the fund's shareholders with regard to decisions such as the shareholder fees charged by the sponsor to manage the fund. For a large sample of closed–end funds, my findings indicate that sponsors exert considerable influence over the board of directors through a variety of mechanisms such as the installation of a sponsor–affiliated board leader, director compensation from service on multiple boards for the sponsor, and control of the director selection process. Furthermore, my examination of closed–end premiums indicates that the market perceives that the absence of sponsor involvement in the director selection process is a credible signal that new directors are not “hand–picked” by the sponsor and that this attribute is positively priced by the market.

Suggested Citation

  • Raj Varma, 2003. "An Empirical Examination of Sponsor Influence over the Board of Directors," The Financial Review, Eastern Finance Association, vol. 38(1), pages 55-76, February.
    • Handle: RePEc:bla:finrev:v:38:y:2003:i:1:p:55-76
    DOI: 10.1111/1540-6288.00035
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    References listed on IDEAS

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    Cited by:

    1. Sophie Xiaofei Kong & Dragon Yongjun Tang, 2008. "Unitary Boards And Mutual Fund Governance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 31(3), pages 193-224, September.

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