Do fiduciary duties matter?

Purpose - The purpose of this paper is to explore whether fiduciary duties impact the behavior of firm insiders. Trust law imposes stricter fiduciary obligations on insiders than corporate law does. This paper seeks to examine whether the difference in fiduciary duties impacts agency conflict, perfo...

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Bibliographic Details
Published in:Corporate governance (Bradford) 2011-01, Vol.11 (5), p.541-548
Main Author: Warburton, A. Joseph
Format: Article
Language:English
Subjects:
Beneficiaries
Boards of directors
Business judgment rule
Charge
Conflicts of interest
Corporate governance
Corporate law
Corporate officers
Corporate structure
Decision making
Directors
Duty of care
Equivalence
Fees & charges
Fiduciaries
Fiduciary responsibility
Flexibility
Heterogeneity
International business
Investment policy
Law
Liability
Mutual funds
Risk
State court decisions
Studies
Trusts
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Summary:Purpose - The purpose of this paper is to explore whether fiduciary duties impact the behavior of firm insiders. Trust law imposes stricter fiduciary obligations on insiders than corporate law does. This paper seeks to examine whether the difference in fiduciary duties impacts agency conflict, performance, and or risk taking.Design methodology approach - The paper takes an empirical approach to answering the question by comparing mutual funds organized as trusts and as corporations. The existence of these two types of organizations within the same industry offers a unique laboratory for the study of the effects of fiduciary duties.Findings - Mutual funds organized in trust form charge significantly lower fees and take on less risk than equivalent mutual funds organized in corporate form. Evidence also suggests that the trusts tend to under-perform their corporate counterparts, even after adjusting for differences in risk.Originality value - Much of the existing literature on firm governance and investor protection focuses on the corporation and, hence, takes organizational form as a given. By comparing trusts and corporations, this paper examines governance at a more fundamental level and exploits heterogeneity in corporate and trust fiduciary duties. The results have implications for corporate governance design, suggesting that heightened fiduciary duties can enhance investor protection by mitigating agency conflict and managerial risk taking, though at the possible cost of inferior risk-adjusted performance.
ISSN:1472-0701
1758-6054
DOI:10.1108/14720701111176957