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The Role of Law, Corruption and Culture in Investment Fund Manager Fees

Author

Listed:
  • Sofia Johan

    (Department of Economics - Tilburg University [Netherlands])

  • Dorra Najar

    (CEREG - Centre de Recherche sur la gestion et la Finance - DRM UMR 7088 - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper considers an international sample of venture capital and private equity funds to assess the role of law, corruption and culture in setting fund manager fees in terms of their fixed management fees, carried interest performance fees, clawbacks of fees and cash versus share distributions of fees. The data highlight a role of legal conditions in shaping fees paid to fund managers. In countries with better legal conditions, fixed fees are lower, carried interest fees are higher, clawbacks are less likely, and share distributions are more likely. These findings suggest legal conditions help to align the interests of managers and shareholders. More specifically, we examine which element of legal conditions matter most, and discover that corruption levels play a pronounced role in shaping fund manager fee contracts. We also show that cultural forces such as Hofstede's measures of power distance and uncertainty avoidance likewise play a role in influencing fees.

Suggested Citation

  • Sofia Johan & Dorra Najar, 2011. "The Role of Law, Corruption and Culture in Investment Fund Manager Fees," Post-Print halshs-00639925, HAL.
  • Handle: RePEc:hal:journl:halshs-00639925
    DOI: 10.1007/s10551-011-0852-7
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00639925
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    Cited by:

    1. Patricia Crifo & Vanina Forget, 2013. "Think Global, Invest Responsible: Why the Private Equity Industry Goes Green," Journal of Business Ethics, Springer, vol. 116(1), pages 21-48, August.
    2. Douglas Cumming & Grant Fleming & Sofia Johan & Mai Takeuchi, 2010. "Legal Protection, Corruption and Private Equity Returns in Asia," Journal of Business Ethics, Springer, vol. 95(2), pages 173-193, September.
    3. Johan, Sofia & Zhang, Minjie, 2016. "Private equity exits in emerging markets," Emerging Markets Review, Elsevier, vol. 29(C), pages 133-153.
    4. Dorra Najar, 2014. "Fund Managers Fees: Estimation and Sensitivity Analysis Using Monte Carlo Simulation," Working Papers 2014-195, Department of Research, Ipag Business School.
    5. Dorra Najar, 2017. "Private equity managers’ fees: estimation and sensitivity analysis using Monte Carlo simulation," Review of Quantitative Finance and Accounting, Springer, vol. 48(1), pages 239-263, January.
    6. S. Ramakrishna Velamuri & Wilson Liu, 2017. "Ownership structure, insider behavior, and IPO performance of SMEs in China," Small Business Economics, Springer, vol. 48(3), pages 771-793, March.

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    Keywords

    Managerial Compensation; Incentive Contracts; Private Equity; Law and Finance;
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