Finance Research Seminar - Marco PAGANO
Marco PAGANO, University of Naples, Federico II, Center for Studies in Economics & Finance
Friday 25 January 2019 (10h30 - 12h00) - Extranef - 126
“Career Risk and Market Discipline in Asset Management”
We establish that the labor market helps discipline asset managers via the impact of fund liquidations on their careers. Using hand-collected data on 1,948 professionals, we find that top managers working for funds liquidated after persistently poor relative performance suffer demotion coupled with a significant loss in imputed compensation. Scarring effects are absent when liquidations are preceded by normal relative performance or involve mid-level employees. Seen through the lens of a model with moral hazard and adverse selection, these scarring effects can be ascribed to a drop in asset managers' reputation. The findings suggest that performance-induced liquidations supplement compensation-based incentives.
HEC Department of Finance