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Title: Is "voting with your feet" an effective mutual fund governance mechanism?
Authors: Qian, M. 
Keywords: Flow sensitivity
Investor vigilance
Market discipline
Trading practice
Issue Date: 2011
Citation: Qian, M. (2011). Is "voting with your feet" an effective mutual fund governance mechanism?. Journal of Corporate Finance 17 (1) : 45-61. ScholarBank@NUS Repository.
Abstract: Investors in open-end mutual funds can vote with their feet by withdrawing assets from or adding assets to these funds. This paper assesses the effectiveness of this market discipline mechanism by investigating whether voting with the feet prevents the abusive practices that led to the 2003-2004 trading scandals. The research results indicate that funds with higher flow sensitivity-that is, a higher density of vigilant clients-have lower arbitrage potential and fewer abnormal flows, which in turn implies less opportunistic trading. As a result, these funds have a lower probability of being implicated in scandals. These findings suggest that investor ability to withdraw assets from or add assets to the funds is an effective mutual fund governance mechanism. In funds with less sophisticated investors who cannot use this option, other means of governance are especially important. © 2010 Elsevier B.V.
Source Title: Journal of Corporate Finance
ISSN: 09291199
DOI: 10.1016/j.jcorpfin.2010.07.003
Appears in Collections:Staff Publications

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