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Career Risk and Market Discipline in Asset Management

Author

Listed:
  • Andrew Ellul

    (Indiana University)

  • Marco Pagano

    (University of Naples Federico II, CSEF, EIEF, CEPR and ECGI)

  • Annalisa Scognamiglio

    (University of Naples Federico II)

Abstract
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.

Suggested Citation

  • Andrew Ellul & Marco Pagano & Annalisa Scognamiglio, 2017. "Career Risk and Market Discipline in Asset Management," EIEF Working Papers Series 1715, Einaudi Institute for Economics and Finance (EIEF), revised Feb 2019.
    • Handle: RePEc:eie:wpaper:1715
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    References listed on IDEAS

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    Cited by:

    1. Andrew Ellul & Marco Pagano & Annalisa Scognamiglio, 2020. "Careers in Finance," EIEF Working Papers Series 2007, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2021.
    2. Pagano, Marco, 2020. "Risk Sharing Within the Firm: A Primer," Foundations and Trends(R) in Finance, now publishers, vol. 12(2), pages 117-198, October.
    3. Maria Goranova & Lori Verstegen Ryan, 2022. "The Corporate Objective Revisited: The Shareholder Perspective," Journal of Management Studies, Wiley Blackwell, vol. 59(2), pages 526-554, March.
    4. Barbu, Alexandru & Fricke, Christoph & ,, 2020. "Procyclical Asset Management and Bond Risk Premia," CEPR Discussion Papers 15123, C.E.P.R. Discussion Papers.
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    6. Luis Arturo Lopez & Shawn J. McCoy & Vivek Sah, 2022. "Steering consumers to lenders in residential real estate markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(6), pages 1596-1641, November.

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    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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