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Should Investors Care About Mutual Fund Governance Quality?: Evidence From Morningstar Stewardship Ratings

Jonathan Handy, Hunter Nichols and Thomas Smythe
The Journal of Wealth Management Winter 2018, 21 (3) 44-58; DOI: https://doi.org/10.3905/jwm.2018.1.065
Jonathan Handy
is an assistant professor of finance at Furman University in Greenville, SC
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Hunter Nichols
is a graduate student at Wake Forest University in Winston-Salem, NC
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Thomas Smythe
is a professor of business and accounting at Furman University in Greenville, SC
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Abstract

This article uses Morningstar Governance Ratings (MGRs) to analyze mutual fund expenses and create an indirect proxy for mutual fund performance. The results differ across ratings type and fund structure. In general, multiple share class (MS) funds do not have lower expenses, which is surprising since MS funds were created explicitly to have lower expenses. Additionally, MGRs impact expenses differently for each fund structure type: a higher board quality rating is only correlated with lower expense ratios for MS funds, while higher managerial incentive ratings are correlated with higher expenses for Non-MS funds and lower expenses for MS funds. When considering that a main impetus for creating MS funds is to lower investor expenses, it is of interest that only funds with higher stewardship ratings seemingly have lower expenses.

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The Journal of Wealth Management: 21 (3)
The Journal of Wealth Management
Vol. 21, Issue 3
Winter 2018
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Should Investors Care About Mutual Fund Governance Quality?: Evidence From Morningstar Stewardship Ratings
Jonathan Handy, Hunter Nichols, Thomas Smythe
The Journal of Wealth Management Oct 2018, 21 (3) 44-58; DOI: 10.3905/jwm.2018.1.065

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Should Investors Care About Mutual Fund Governance Quality?: Evidence From Morningstar Stewardship Ratings
Jonathan Handy, Hunter Nichols, Thomas Smythe
The Journal of Wealth Management Oct 2018, 21 (3) 44-58; DOI: 10.3905/jwm.2018.1.065
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