This paper provides an empirical investigation of directors' ownership in the mutual fund industry. Results from this study show that, contrary to anecdotal evidence, a significant portion of directors hold shares in the funds they oversee. Moreover, ownership patterns are broadly consistent with the optimal-contracting hypothesis. That is, ownership is positively and significantly correlated with most variables that are predicted to indicate greater value from monitoring or indicate lack of other incentives. On the other hand, however, the unconditional average dollar amount of holding by a director in a single fund is low, probably because directors in mutual funds sit on many boards at the same time. The authors find some evidence that directors exhibit performance chasing in their ownership choice. They also find that funds with small boards, boards with high percentage of disinterested directors, and directors with concentrated ownerships provide lower costs to investors.
