Fund Manager Succession in Closed-End Mutual Funds

Managing the succession process by the hiring and firing of key executives is one of the important functions of a board of directors. In this research we study successions of fund managers in the closed‐end mutual fund industry. The agency issues inherent in closed‐end mutual funds makes them a unique laboratory for such a study. Our results suggest that while the overall abnormal returns of these manager changes are statistically insignificant, that the returns are more positive for funds with large expense ratios and for funds trading at a discount. We also find the abnormal returns are negatively related to the percentage of inside director stock ownership. Corporate bond funds and international equity funds react more negatively to these announcements than other types of funds. The abnormal returns do not appear to be related to board composition, but board composition does vary across fund type, and may therefore indirectly influence the results.