Career Risk and Market Discipline in Asset Management

Andrew Ellul (), Marco Pagano and Annalisa Scognamiglio ()
Additional contact information
Andrew Ellul: Indiana University and CSEF
Annalisa Scognamiglio: Università di Napoli Federico II and CSEF, http://www.csef.it/Scognamiglio

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

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: 2017-11-21, Revised 2019-03-01
New Economics Papers: this item is included in nep-hrm, nep-lma and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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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 (2018)
Working Paper: Career risk and market discipline in asset management (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:489

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