IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article

Bonus Payments and Fund Managers' Behavior: Transatlantic Evidence

  • Thomas P. Gehrig
  • Torben Lütje
  • Lukas Menkhoff

This questionnaire survey of fund managers in USA, Germany, and Switzerland documents a distinctly positive influence of bonus payments on investment behavior on both sides of the Atlantic. Higher bonus payments are significantly related to higher working effort but not to risk-taking. They also seem to induce fund managers to rely more on fundamental information. Findings within regions are confirmed by Transatlantic evidence as US fund managers receive larger bonuses but also show the effects to a higher degree. The effects documented are stronger for relative than for absolute performance assessment. (JEL-Codes: G23, G14) Copyright , Oxford University Press.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1093/cesifo/ifn038
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by CESifo in its journal CESifo Economic Studies.

Volume (Year): 55 (2009)
Issue (Month): 3-4 ()
Pages: 569-594

as
in new window

Handle: RePEc:oup:cesifo:v:55:y:2009:i:3-4:p:569-594
Contact details of provider: Postal:
Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK

Phone: +49 (89) 9224-0
Fax: 01865 267 985
Web page: http://cesifo.oxfordjournals.org/
Email:


More information through EDIRC

Order Information: Web: http://www.oup.co.uk/journals

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Sandeep Kapur & Allan Timmermann, 2005. "Relative Performance Evaluation Contracts and Asset Market Equilibrium," Economic Journal, Royal Economic Society, vol. 115(506), pages 1077-1102, October.
  2. Basak, Suleyman & Pavlova, Anna & Shapiro, Alex, 2005. "Offsetting the Incentives: Risk Shifting and Benefits of Benchmarking in Money Management," CEPR Discussion Papers 5006, C.E.P.R. Discussion Papers.
  3. Arnswald, Torsten, 2001. "Investment Behaviour of German Equity Fund Managers - An Exploratory Analysis of Survey Data," Discussion Paper Series 1: Economic Studies 2001,08, Deutsche Bundesbank, Research Centre.
  4. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
  5. Gibbons, R. & Murphy, K.J., 1990. "Optimal Incentive Contracts In The Presence Of Career Concerns: Theory And Evidence," Working papers 563, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  7. Jennifer Carpenter, 1999. "Does Option Compensation Increase Managerial Risk Appetite?," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-076, New York University, Leonard N. Stern School of Business-.
  8. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns of Mutual Fund Managers," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 389-432.
  9. Menkhoff, Lukas & Schmidt, Ulrich & Brozynski, Torsten, 2006. "The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence," European Economic Review, Elsevier, vol. 50(7), pages 1753-1766, October.
  10. repec:sae:ilrrev:v:43:y:1990:i:3:p:30-51 is not listed on IDEAS
  11. Admati, Anat R & Pfleiderer, Paul, 1997. "Does It All Add Up? Benchmarks and the Compensation of Active Portfolio Managers," The Journal of Business, University of Chicago Press, vol. 70(3), pages 323-50, July.
  12. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
  13. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
  14. Beckmann, Daniela & Menkhoff, Lukas & Suto, Megumi, 2008. "Does culture influence asset managers' views and behavior?," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 624-643, September.
  15. Kouwenberg, Roy & Ziemba, William T., 2007. "Incentives and risk taking in hedge funds," Journal of Banking & Finance, Elsevier, vol. 31(11), pages 3291-3310, November.
  16. Bhattacharya, Sudipto & Pfleiderer, Paul, 1985. "Delegated portfolio management," Journal of Economic Theory, Elsevier, vol. 36(1), pages 1-25, June.
  17. Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
  18. Dirk Jenter & Fadi Kanaan, 2006. "CEO Turnover and Relative Performance Evaluation," NBER Working Papers 12068, National Bureau of Economic Research, Inc.
  19. Stracca, Livio, 2005. "Delegated portfolio management: a survey of the theoretical literature," Working Paper Series 0520, European Central Bank.
  20. Palomino, Frédéric & Prat, Andrea, 1999. "Risk Taking and Optimal Contracts for Money Managers," CEPR Discussion Papers 2066, C.E.P.R. Discussion Papers.
  21. Marco Ottaviani & Peter Norman Sørensen, 2004. "The Strategy of Professional Forecasting," FRU Working Papers 2004/05, University of Copenhagen. Department of Economics. Finance Research Unit.
  22. Daniela Beckmann & Lukas Menkhoff, 2008. "Will Women Be Women? Analyzing the Gender Difference among Financial Experts," Kyklos, Wiley Blackwell, vol. 61(3), pages 364-384, 08.
  23. Kerstin Drachter & Alexander Kempf & Michael Wagner, 2007. "Decision processes in German mutual fund companies: evidence from a telephone survey," International Journal of Managerial Finance, Emerald Group Publishing, vol. 3(1), pages 49-69, January.
  24. John R. Graham, 1999. "Herding among Investment Newsletters: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(1), pages 237-268, 02.
  25. Roger Otten & Dennis Bams, 2002. "European Mutual Fund Performance," European Financial Management, European Financial Management Association, vol. 8(1), pages 75-101.
  26. Welch, Ivo, 2000. "Views of Financial Economists on the Equity Premium and on Professional Controversies," The Journal of Business, University of Chicago Press, vol. 73(4), pages 501-37, October.
  27. Eichberger, Jurgen & Grant, Simon & King, Stephen P., 1999. "On relative performance contracts and fund manager's incentives," European Economic Review, Elsevier, vol. 43(1), pages 135-161, January.
  28. Dasgupta, Amil & Prat, Andrea, 2008. "Information aggregation in financial markets with career concerns," Journal of Economic Theory, Elsevier, vol. 143(1), pages 83-113, November.
  29. Heber Farnsworth & Jonathan Taylor, 2006. "Evidence On The Compensation Of Portfolio Managers," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(3), pages 305-324.
  30. Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 1-25, February.
  31. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
  32. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-34, December.
  33. Shiller, 021Robert J. & Pound, John, 1989. "Survey evidence on diffusion of interest and information among investors," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 47-66, August.
  34. Hui Ou-Yang, 2003. "Optimal Contracts in a Continuous-Time Delegated Portfolio Management Problem," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 173-208.
  35. Gumbel, Alexander, 2005. "Herding in delegated portfolio management: When is comparative performance information desirable?," European Economic Review, Elsevier, vol. 49(3), pages 599-626, April.
  36. Edward P. Lazear, 2000. "The Power of Incentives," American Economic Review, American Economic Association, vol. 90(2), pages 410-414, May.
  37. Mark Grinblatt & Sheridan Titman, 1989. "Adverse Risk Incentives and the Design of Performance-Based Contracts," Management Science, INFORMS, vol. 35(7), pages 807-822, July.
  38. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
  39. Jennifer N. Carpenter, 2000. "Does Option Compensation Increase Managerial Risk Appetite?," Journal of Finance, American Finance Association, vol. 55(5), pages 2311-2331, October.
  40. Judith Chevalier & Glenn Ellison, 1998. "Career Concerns of Mutual Fund Managers," NBER Working Papers 6394, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oup:cesifo:v:55:y:2009:i:3-4:p:569-594. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.