Career Risk and Market Discipline in Asset Management

Andrew Ellul, Marco Pagano and Annalisa Scognamiglio

The Review of Financial Studies, 2020, vol. 33, issue 2, 783-828

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.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Date: 2020
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Related works:
Working Paper: Career Risk and Market Discipline in Asset Management (2019)
Working Paper: Career Risk and Market Discipline in Asset Management (2019)
Working Paper: Career Risk and Market Discipline in Asset Management (2018)
Working Paper: Career risk and market discipline in asset management (2018)
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