The impact of governance on equity funds' performance during stable and turbulent market conditions

There is scant literature that explores the impact of corporate governance on the performance of equity funds. Furthermore, the evidence is non-existent for emerging markets and in this study; we address this void by assessing the impact of corporate governance on funds' performance. Using the Morningstar Stewardship grades, we segregate the equity funds with exposure in emerging markets into high and low-governance funds. The study employs a comprehensive sample between 2012 and 2021 to evaluate the comparative risk adjustment performance and market and volatility timing ability of these funds. Our findings reveal that better-governed funds exhibit higher risk-adjusted returns and demonstrate superior market and volatility timing compared to their counterparts. The results remained robust during the pandemic outbreak highlighting an even more profound role of governance for mutual funds. These findings have actionable implications for the mutual fund industry that can help in optimising fiduciary responsibilities.