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Employment risk, compensation incentives and managerial risk taking: Evidence from the mutual fund industry

  • Kempf, Alexander
  • Ruenzi, Stefan
  • Thiele, Tanja

We examine the influence on managerial risk taking of incentives due to employment risk and due to compensation. Our empirical investigation of the risk taking behavior of mutual fund managers indicates that managerial risk taking crucially depends on the relative importance of these incentives. When employment risk is more important than compensation incentives, fund managers with a poor midyear performance tend to decrease risk relative to leading managers to prevent potential job loss. When employment risk is low, compensation incentives become more relevant and fund managers with a poor midyear performance increase risk to catch up with the midyear winners.

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Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 07-02.

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Date of creation: 2008
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Handle: RePEc:zbw:cfrwps:0702
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