Hedge fund incentives, management commitment and survivorship

Judy Qiu (), Leilei Tang () and Ingo Walter ()
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Judy Qiu: University of Western Australia
Leilei Tang: University of Strathclyde
Ingo Walter: New York University

Financial Markets and Portfolio Management, 2018, vol. 32, issue 2, No 1, 115-142

Abstract: Abstract Management ownership in hedge funds sends conflicting signals—signals which reduce investors’ perception of survivorship risk. We document that decisions on management ownership are purposely self-selected. Such decisions are most likely motivated by unique incentive mechanisms imbedded in hedge funds. We examine the impact of managerial ownership decisions on fund survivorship risk by accounting for unobserved fund manager motivations that affect both ownership decisions and survivorship risk. Our findings suggest that the conventional argument that having management commitment can reduce survival risk (and therefore align the interests between managers and investors) is significantly overstated. These results are robust to using alternative ownership measures and controlling for different samples.

Keywords: Hedge fund incentive; Endogeneity; Management ownership; Survivorship risk (search for similar items in EconPapers)
JEL-codes: C34 G23 G32 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s11408-018-0309-4

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