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Career Risk and Market Discipline in Asset Management

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  • Ellul, Andrew
  • Pagano, Marco
  • Scognamiglio, Annalisa

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.

Suggested Citation

  • Ellul, Andrew & Pagano, Marco & Scognamiglio, Annalisa, 2018. "Career Risk and Market Discipline in Asset Management," CEPR Discussion Papers 12851, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12851
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    Cited by:

    1. Pagano, Marco, 2020. "Risk Sharing Within the Firm: A Primer," Foundations and Trends(R) in Finance, now publishers, vol. 12(2), pages 117-198, October.
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    5. Luis Arturo Lopez & Shawn J. McCoy & Vivek Sah, 2022. "Steering consumers to lenders in residential real estate markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(6), pages 1596-1641, November.

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    More about this item

    Keywords

    Careers; Hedge funds; Asset managers; Market discipline; Scarring effects;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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