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Hedge Fund Boards and the Market for Independent Directors

Published online by Cambridge University Press:  14 September 2018

Christopher P. Clifford ,
Jesse A. Ellis  and
William C. Gerken
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Abstract

We provide the first examination of hedge fund boards and their directors. The majority of directorships are held by extremely busy independent directors. These directors are sought by funds because they have more reputational capital at stake, making them independent and credible monitors whose presence can certify fund quality to investors. Busy independent directors are more likely to be hired by high-quality funds, and their departure from the board is associated with investor withdrawals. Moreover, funds with busy independent directors are less likely to commit fraud, abuse discretionary liquidity restrictions, or engage in performance-based risk shifting.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 5 , October 2018 , pp. 2067 - 2101
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank seminar participants at the 2014 Conference on Professional Asset Management, the 2014 Mid-Atlantic Research Conference, the 2014 Recent Advances in Mutual Fund and Hedge Fund Research, the 2014 Symposium on Hedge Funds and Regulation at SUNY Albany, Miami University, Texas Christian University, University of Kentucky, University of Tennessee, West Virginia University, Wilfrid Laurier University, and University of North Carolina at Charlotte. We thank Vikas Agarwal, George Aragon, Douglas Cumming (the referee), Naveen Daniel (discussant), Diane Del Guercio, Stephen Dimmock, Jarrad Harford (the editor), Russell Jame, Petri Jylha (discussant), David Mauer, Shawn Mobbs, Louis Piccotti (discussant), Martin Schmalz, Chris Schwarz (discussant), Shawn Thomas, Mark Walker, and Richard Warr for their comments. We would like to especially thank Gary Linford, Don Seymour, Darren Stainrod, and Alan Tooker for providing institutional detail. Gerken acknowledges the support of the John H. Schnatter Institute for the Study of Free Enterprise. We thank Nathaniel Graham, Xin Hong, Qiping Huang, and Emma Xu for research assistance.

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