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Hedge fund incentives, management commitment and survivorship

Author

Listed:
  • Judy Qiu

    (University of Western Australia)

  • Leilei Tang

    (University of Strathclyde)

  • Ingo Walter

    (New York University)

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.

Suggested Citation

  • Judy Qiu & Leilei Tang & Ingo Walter, 2018. "Hedge fund incentives, management commitment and survivorship," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 32(2), pages 115-142, May.
    • Handle: RePEc:kap:fmktpm:v:32:y:2018:i:2:d:10.1007_s11408-018-0309-4
    DOI: 10.1007/s11408-018-0309-4
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    More about this item

    Keywords

    Hedge fund incentive; Endogeneity; Management ownership; Survivorship risk;
    All these keywords.

    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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