Pension Fund Manager Tournaments and Attitudes Towards Corporate Characteristics

20 Pages Posted: 15 Oct 2007

See all articles by Paul R. Cox

Paul R. Cox

University of Exeter Business School - XFI Centre for Finance and Investment

Stephen J. Brammer

University of Bath - School of Management

Andrew Millington

University of Bath - School of Management

Abstract

This paper explores the relationship between the tournament incentives of pension fund managers and the characteristics of equities they choose to hold. Using a comprehensive data set on pension fund portfolio holdings, we determine the intensity of fund manager tournaments by sorting pension funds into portfolios based on the number of concurrent managers each pension fund employs. We then investigate which corporate characteristics are preferred by each of these portfolios by estimating share selection models that include a range of corporate characteristics that are expected to shape the returns to investment in stocks over the short and long run. We find that the intensity of the tournament faced by fund managers plays a significant role in shaping preferences over corporate characteristics. Managers facing more intense tournaments exhibit significantly weaker preferences for attributes associated with long run payoffs, such as social performance and growth potential, and significantly stronger preferences for short term attributes, such as operational efficiency, when compared to managers that face weak or no tournament incentives.

Suggested Citation

Cox, Paul R. and Brammer, Stephen and Millington, Andrew, Pension Fund Manager Tournaments and Attitudes Towards Corporate Characteristics. Journal of Business Finance & Accounting, Vol. 34, Nos. 7-8, pp. 1307-1326, September/October 2007, Available at SSRN: https://ssrn.com/abstract=1020813 or http://dx.doi.org/10.1111/j.1468-5957.2007.02037.x

Paul R. Cox (Contact Author)

University of Exeter Business School - XFI Centre for Finance and Investment ( email )

University of Exeter
Xfi Building, Rennes Dr.
Exeter, EX4 3BZ
United Kingdom

Stephen Brammer

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
01225 826826, ext. 5685 (Phone)

Andrew Millington

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
+44 (0) 1225 383068 (Phone)

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