We establish that the labor market helps discipline asset managers via the impact of fund liquidations on their careers. Using hand-collected data on 1,948 professionals, we find that top managers working for funds liquidated after persistently poor relative performance suffer demotion coupled with a significant loss in imputed compensation. Scarring effects are absent when liquidations are preceded by normal relative performance or involve mid-level employees. Seen through the lens of a model with moral hazard and adverse selection, these scarring effects can be ascribed to a drop in asset managers’ reputation. The findings suggest that performance-induced liquidations supplement compensation-based incentives.

Career Risk and Market Discipline in Asset Management / Ellul, Andrew; Pagano, Marco; Scognamiglio, Annalisa. - In: THE REVIEW OF FINANCIAL STUDIES. - ISSN 0893-9454. - 33:2(2020), pp. 783-828. [10.1093/rfs/hhz062]

Career Risk and Market Discipline in Asset Management

Ellul, Andrew;Pagano, Marco;Scognamiglio, Annalisa
2020

Abstract

We establish that the labor market helps discipline asset managers via the impact of fund liquidations on their careers. Using hand-collected data on 1,948 professionals, we find that top managers working for funds liquidated after persistently poor relative performance suffer demotion coupled with a significant loss in imputed compensation. Scarring effects are absent when liquidations are preceded by normal relative performance or involve mid-level employees. Seen through the lens of a model with moral hazard and adverse selection, these scarring effects can be ascribed to a drop in asset managers’ reputation. The findings suggest that performance-induced liquidations supplement compensation-based incentives.
2020
Career Risk and Market Discipline in Asset Management / Ellul, Andrew; Pagano, Marco; Scognamiglio, Annalisa. - In: THE REVIEW OF FINANCIAL STUDIES. - ISSN 0893-9454. - 33:2(2020), pp. 783-828. [10.1093/rfs/hhz062]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11588/780204
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