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The impact of labor mobility restrictions on managerial actions: Evidence from the mutual fund industry

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  • Cici, Gjergji
  • Hendriock, Mario
  • Kempf, Alexander

Abstract

We examine how labor mobility restrictions in the form of non-compete clauses in employment contracts affect employee behavior. Using the mutual fund industry as testing laboratory, we show that fund managers respond to higher job termination costs due to increased enforceability of non-compete clauses by increasing their contribution to their employer's revenue. They do so by improving their fund performance, while also increasing window dressing to attract new customers and increase fee revenue. Furthermore, the change in incentives disciplines managers’ risk taking, as shown by noticeable reductions in their portfolio risk, portfolio deviations from peers, and engagement in fund tournaments.

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  • Cici, Gjergji & Hendriock, Mario & Kempf, Alexander, 2021. "The impact of labor mobility restrictions on managerial actions: Evidence from the mutual fund industry," Journal of Banking & Finance, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:jbfina:v:122:y:2021:i:c:s0378426620302569
    DOI: 10.1016/j.jbankfin.2020.105994
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    Cited by:

    1. Cici, Gjergji & Kempf, Alexander & Peitzmeier, Claudia, 2022. "Knowledge spillovers in the mutual fund industry through labor mobility," Journal of Banking & Finance, Elsevier, vol. 134(C).
    2. Al-Hadi, Ahmed & Habib, Ahsan, 2023. "Consequences of state-level regulations in accounting, finance, and corporate governance: A review," Advances in accounting, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Labor mobility; Non-compete clauses; Mutual funds; Career concerns;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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