Speaker:
Marco Pagano
University of Naples
Federico II
Discussant:
Claudia Custodio
Imperial College London
Abstract
Paper Authors: Andrew Ellul, Marco Pagano and Annalisa Scognamiglio
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 profes sionals, we find that top managers working for funds liquidated after persistently poor relative performance suffer demotion entailing a yearly average compensa tion loss of $664,000. Scarring effects are absent when liquidations are preceded by normal performance or involve mid-level employees. Based on a model with moral hazard and adverse selection, we find that these results can be ascribed to reputation loss rather than bad luck. The findings suggest that performance-in duced liquidations supplement compensation-based incentives.
