ساختار هیئت مدیره، ادغامات، و ثروت سهامداران: مطالعه از صنعت سرمایه گذاری متقابل

We study mutual fund mergers between 1999 and 2001 to understand the role and effectiveness of fund boards. Some fund mergers—typically across-family mergers—benefit target shareholders but are costly to target fund directors. Such mergers are more likely when funds underperform and their boards have a larger percentage of independent trustees, suggesting that more-independent boards tolerate less underperformance before initiating across-family mergers. This effect is most pronounced when all of the fund's directors are independent, not the 75% level of independence required by the SEC. Higher-paid target fund boards are less likely to approve across-family mergers that cause substantial reductions in their compensation.

Recent scandals involving US mutual fund companies have elevated concerns among fund regulators and pundits regarding the effectiveness of mutual fund boards the so-called watchdogs of shareholders’ interests. To better protect the interests of fund shareholders, the Securities and Exchange Commission (SEC) voted on June 23, 2004 to require that chairpersons of mutual fund boards be independent of the investment advisory firm affiliated with the fund. In addition, the SEC required that at least 75% of the mutual fund directors be independent.1 The previous requirement was 50%. The US Chamber of Commerce objected by filing a lawsuit opposing the changes; according to its general counsel, “There's no empirical evidence that an independent chairman or a 75% majority will have a positive effect on the performance of mutual funds”.2 Two of the five SEC commissioners also objected, arguing that there was little empirical data to support such drastic changes in fund governance policies. Nonetheless, there is some evidence that addresses whether fund boards with certain structural characteristics perform differently. Examining open-end fund companies from the 50 largest fund complexes, Tufano and Sevick (1997) document that fund fees are smaller for funds overseen by smaller boards and boards with a larger proportion of independent directors. Del Guercio, Dann, and Partch (2003) document similar evidence for closed-end mutual funds. Zitzewitz (2003) finds that the adoption of fair value pricing, which protects investors from market timing, is negatively related to the percentage of insiders on the board, suggestive of agency problems inherent in fund organizations. These studies look at fee setting and pricing policies because regulations empower fund boards to oversee or make such decisions. In this paper, we examine another fund decision where boards play a critical role: the decision to merge a fund out of existence. Using a cross-section of fund boards in the 1999–2001 period, we examine the relation between mergers and board structure. We motivate this work by examining the consequences of mergers of funds for their shareholders and trustees. We primarily focus on target funds in across-family mergers, i.e., mergers between acquiring and target funds belonging to different fund families, because these mergers typically reflect an organizational restructuring rather than a mere reshuffling of funds within a complex. Consistent with earlier studies, we find that fund mergers—especially across-family fund mergers—tend to be value enhancing for target fund shareholders. However, these mergers are costly for the trustees of these merged funds, who lose board seats and compensation. Given this possible tension between the board's private interests and its fiduciary duties, certain governance traits might enhance a board's willingness to take actions that are personally costly but beneficial for shareholders. Specifically, we study whether boards that are thought to be more independent or effective are more likely to take such actions promptly. We also study whether boards for whom merging is more costly, in terms of a prospective loss in director compensation, are less likely to merge themselves out of a job. Our work broadly relates to studies that link firm value to governance traits (e.g., Gompers, Ishii, and Metrick, 2003). However, given the unique nature of a fund's organizational structure, many corporate governance devices are not applicable, such as anti-greenmail provisions, poison pills, golden parachutes, cumulative voting, and special supermajority rules. Rather, we focus on governance measures used in the fund industry. Consistent with prior studies, we find that mergers are more likely when the target's performance is poor, the target is small and young, and its expenses are high. What's more, fund mergers—at least across-family mergers—are significantly more likely when the target underperforms and its board is composed primarily of independent directors, a structural characteristic attributed to more independent and effective boards. Boards that are nominally more independent tolerate less underperformance before initiating a merger, relative to other funds with the same investment objective. To the extent that mergers are reactions to poor performance, independent boards are more likely to act, and to act more quickly, to stem shareholder losses from poor performance. The SEC has mandated that boards have 75% independent members, but our results suggest that it is boards composed wholly of independent members that seem to be most vigilant with respect to performance. Trustees approve across-family mergers even when this leads to a substantial loss of their board compensation, consistent with trustees putting the interests of shareholders before their own. In our multinomial logistic regression analyses, however, we find that mergers are less likely among target funds whose directors are paid more, especially for across-family mergers where trustees are likely to lose their seats and compensation as a result of the merger. In these circumstances, directors’ private interests may come into conflict with their fiduciary duties. We also examine the role of a variety of other board characteristics in explaining the fund merger decision. Specifically, we study the effect of the presence of a retirement and deferred compensation plans, the number of outside directorships held by each independent board member, the prior industry experience of independent board members, and the age of the fund's board. Our results provide little evidence that any of these characteristics affect the likelihood of performance-related fund mergers. While certain types of boards might initiate performance-related mergers sooner, we find no evidence that board characteristics are related to post-merger performance. Generally, target underperformance is halted but not reversed, regardless of board structure. Once awakened, boards of all types seem to take steps that lead to roughly comparable performance outcomes, i.e., they catch up to the median fund of their type. The remainder of the paper is organized as follows. Section 2 provides institutional background on fund mergers, a basic description of the fund merger data, and a discussion of related hypotheses. Section 3 discusses the relation between a fund's governance structure and the propensity to merge. Section 4 offers conclusions.

Mutual fund boards, especially their independent members, are charged with specific responsibilities to protect the interests of fund shareholders. They oversee fund pricing, ensure regulatory compliance, and renegotiate contracts each year with all the service providers, including the management company, distributor, auditor, and others. They also play an integral role in the merger process. Given the many recent allegations about the ineffectiveness of fund boards, we examine whether board independence, measured in a variety of ways, influences the likelihood and outcome of fund mergers. As in other papers, we find that fund mergers occur when a target is smaller, underperforms its peers, and experiences asset outflows. Specifically, we try to understand whether board structure influences the relation between performance and the likelihood of a fund merger. Our results suggest that board structure matters—up to a point. We find no evidence that smaller boards and boards with independent chairs are more responsive to shareholder interests, at least with respect to in-family or across-family fund mergers. However, we do find that target boards with a larger fraction of independent directors are less willing to tolerate poor performance before initiating mergers. While current rules mandate that boards be composed of at least 75% independent members, we find that it is boards composed of only independent members (100% independent) that are intolerant of poor performance. These results are observable only for the subsample of across-family mergers where, unlike in-family mergers, the target and acquiring fund boards do not have any significant overlap in fund directors. For boards of funds engaged in in-family mergers, reconciling their separate fiduciary duties to target and acquiring funds can be relatively difficult. Target fund boards approve across-family mergers even when this leads to a substantial loss in their compensation, consistent with trustees putting the interests of shareholders before their own. But in our multinomial logistic regression analyses, across-family mergers are less likely among target funds whose directors are paid more, especially because these trustees are likely to lose their seats and compensation as a result of the merger. This suggests that directors’ private interests may come into conflict with their fiduciary duties. While some pundits have characterized fund boards as sleeping dogs rather than watchdogs, once awakened, these dogs bark and bite similarly. Post-merger, regardless of prior board makeup, target funds stop underperforming, bringing their performance roughly up to the median level of funds with the same investment objective. Some have suggested that fund boards are an unnecessary anachronism. In a world where investors can get updated information each day on the performance of their funds, and can vote with their feet, why do we need boards? Our work suggests that mergers—which shareholders cannot initiate on their own—are more quickly triggered by certain types of boards. Because these mergers stem performance deterioration, perhaps we should be careful before removing this layer of investor protection.