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Performance Incentive Fees: An Agency Theoretic Approach

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  • Starks, Laura T.

Abstract

This paper employs recent developments in agency theory to study the impact that compensation contracts have on portfolio management investment decisions in a restricted mean-variance world. Two types of incentive contracts for mutual fund managers are analyzed and compared. The results show that the “symmetric†contract, while not necessarily eliminating agency costs, dominates the “bonus†contract in aligning the manager's interests with those of the investor.

Suggested Citation

  • Starks, Laura T., 1987. "Performance Incentive Fees: An Agency Theoretic Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(1), pages 17-32, March.
  • Handle: RePEc:cup:jfinqa:v:22:y:1987:i:01:p:17-32_01
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