Research On The Relationships Between Affiliated Transactions And Internal Governance Of China’s Open-ended Funds

With the rapid growth, open-ended funds become the mainstream of Chinesesecurities investment funds industry in ten years, but with the expanding processaffiliated transactions of funds also emerge frequently. This phenomenon seriouslyaffects the credibility of this industry and hinders the healthy development of securitiesinvestment fund industry. The scandal of affiliated transactions is exposed frequentlyand it attracts attentions of regulatory authorities. But affiliated transactions of fundscan not stop despite repeated prohibition. The reason is that open-ended funds makefund companies to form double principal-agent. Therefore, these companies are easy toform “insider control” and generate affiliated transactions. At the same time, externalgovernance has not yet formed. Therefore, internal governance of fund companies tosupervise affiliated transactions effectively is very important.Now, the achievements of researching on internal governance of fund companiesand affiliated transactions of funds use theory analysis principally and then theempirical study on internal governance of fund companies and affiliated transactions isless. Therefore, based on principal agent theory, this article chooses open-ended fundsas the research object and empirically studies the inhibitory effect of internalgovernance of fund companies on affiliated transactions. In the meanwhile, the writerhopes to give some suggestions to improve internal governance of fund companies.At first, this article analyzes affiliated transactions of funds theoretically and findsthe reasons of affiliated transactions of funds and the major defects of internalgovernance of fund companies. Then, this paper gives the definition of affiliatedtransactions of funds and quantifies the specific form of three kinds of affiliatedtransactions of funds. At last with multiple regressions and a single ANOVA empirical,the writer researches the inhibitory effect of internal governance of fund companies onaffiliated transactions and comparing with three kinds of fund companies. The thesisfinds that improve the proportion of independent directors with the experience ofsecurities or funds industry in the board can restrain affiliated transactions of funds, andthe independent directors can restrain family co-holding behavior effectively. Theredundant of the board is unfavorable for supervising affiliated transactions. Theredundant of the board is unfavorable for supervising affiliated custody fees andaffiliated commissions. The inhibitory effect of supervision committee、inspectors is not significant. The investment decision committee is only unfavorable for affiliatedcommissions, whereas one dominating stock monopolizes of securities companies in theboard can increase affiliated commissions. The fund companies which are the securitiescompanies as the biggest shareholder have more affiliated transactions and their internalgovernance has more defects. Blindly issue new funds will intensify family co-holdingbehavior and increase risk of the fund companies; finally it may hurt the benefit of fundholders.