Journal of Financial and Quantitative Analysis

Research Articles

Does Skin in the Game Matter? Director Incentives and Governance in the Mutual Fund Industry

Martijn Cremersa1, Joost Driessena2, Pascal Maenhouta3 and David Weinbauma4

a1 Yale School of Management, Box 20820, New Haven, CT 06520.

a2 University of Amsterdam, Faculty of Economics and Econometrics, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands.

a3 INSEAD, Finance Department, Boulevard de Constance, 77305 Fontainebleau Cedex, France.

a4 Syracuse University, Whitman School of Management, 721 University Ave., Syracuse, NY 13244.


We use a unique database on ownership stakes of equity mutual fund directors to analyze whether the directors’ incentive structure is related to fund performance. Ownership of both independent and nonindependent directors plays an economically and statistically significant role. Funds in which directors have low ownership, or “skin in the game,” significantly underperform. We posit two economic mechanisms to explain this relation. First, lack of ownership could indicate a director’s lack of alignment with fund shareholder interests. Second, directors may have superior private information on future performance. We find evidence in support of the first and against the second mechanism.


We thank Hendrik Bessembinder (the editor), Sanjai Bhagat, Bruno Biais, Francesca Cornelli, Alexei Goriaev, Martin Gruber, Jerome Hass, Roger Ibbotson, Steven Kaplan, Owen Lamont, Urs Peyer, Martin Shubik, Matthew Spiegel, Paula Tkac, Heather Tookes, Peter Tufano (the referee), An Yan, and seminar participants at the Yale School of Management, the 2005 meeting of the European Finance Association, the 2005 Burridge Center Conference, the 2006 meeting of the Western Finance Association, and the 2006 meeting of the European Financial Management Association for helpful comments and discussions.