Conflict of interest to declare? A study of individual-controlled funds in China

Zhuang Zhuang, Carl Hsin-han Shen*, Juan Yao

*Corresponding author for this work

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Abstract

China's financial deregulation has led to the rise of individual-controlled fund management companies, where the largest shareholder is a person rather than an institution. This study examines these mutual funds, known as “individual-controlled funds” (ICFs), particularly from the perspective of potential conflict of interest. ICFs are more likely to prioritize performance given there is limited interference in their activities by affiliated institutions. They consistently outperform peers by 0.7 % per month, after accounting for fund characteristics. This outperformance is more pronounced when the largest individual owner has greater influence in the fund company. We also document the lower propensity of ICFs to engage in misconduct. Our findings demonstrate that minimizing conflicts of interest benefits performance in the mutual fund industry.

Original languageEnglish
Article number107376
Pages (from-to)1-14
Number of pages14
JournalJournal of Banking and Finance
Volume171
DOIs
Publication statusPublished - Feb 2025

Bibliographical note

© 2024 The Authors. Published by Elsevier B.V. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

  • Chinese market
  • Fund performance
  • Manager skill
  • Mutual funds

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