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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Dec 1, 2014

Managed Distribution Policies in Closed-End Funds and Shareholder Activism


In closed-end funds, a managed distribution policy (MDP) is a dividend commitment potentially requiring the liquidation of assets. We argue that MDPs lower managerial claims on fund assets and, when the fund is at a discount, increase shareholder value. This transfer of wealth can be rationalized by managers wishing to deter a challenge from activist shareholders through a costly proxy vote. We find strong empirical evidence that managers respond to the presence of activists using MDPs, that MDPs constitute an effective wealth transfer to shareholders, and that activists are less likely to challenge management when an MDP is in place.


Cherkes, M., Sagi, J., & Wang, Z. (2014). Managed distribution policies in closed-end funds and shareholder activism. Journal of Financial and Quantitative Analysis, 49(5-6), 1311-1337. doi:10.1017/S0022109014000544

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