Portfolio Manager Compensation and Mutual Fund Performance
Singapore Management University - Lee Kong Chian School of Business
IE Business School
May 13, 2016
Finance Down Under 2014 Building on the Best from the Cellars of Finance
We use a novel dataset to study the relation between individual portfolio manager compensation and mutual fund performance. Managers with explicit performance-based pay exhibit superior subsequent fund performance, especially when investment advisors link pay to performance over a longer time period. In contrast, alternative compensation arrangements, such as fixed salary, assets-based pay, or advisor-profits-based pay are not associated with superior performance. Our tests further show that the positive relation between performance-based contracts and fund performance is not driven by the selection of talented managers proxied by education background. Lastly, managers with performance-based pay engage less in risk-shifting activities.
Number of Pages in PDF File: 72
Keywords: Portfolio manager compensation, mutual funds, fund performance, risk shifting
JEL Classification: G23, J33
Date posted: March 18, 2012 ; Last revised: May 14, 2016
© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.
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