Career Risk and Market Discipline in Asset Management

Andrew Ellul, Marco Pagano and Annalisa Scognamiglio

No 12851, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 entailing a yearly average compensation loss of $664,000. Scarring effects are absent when liquidations are preceded by normal performance or involve mid-level employees. Based on a model with moral hazard and adverse selection, we find that these results can be ascribed to reputation loss rather than bad luck. The findings suggest that performance-induced liquidations supplement compensation-based incentives.

Keywords: Careers; Hedge funds; Asset managers; Market discipline; Scarring effects (search for similar items in EconPapers)
JEL-codes: G20 G23 J24 J62 J63 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-hrm, nep-lma and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Career Risk and Market Discipline in Asset Management (2020)
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)
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