Career Risk and Market Discipline in Asset Management
Marco Pagano () and
Annalisa Scognamiglio ()
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Andrew Ellul: Indiana University
No 1715, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)
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.
Date: 2017, Revised 2019-02
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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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