The Impact of Labor Mobility Restrictions on Managerial Actions: Evidence from the Mutual Fund Industry

AFA 2019 Atlanta Meetings Paper

55 Pages Posted: 2 Apr 2018 Last revised: 20 Feb 2020

See all articles by Gjergji Cici

Gjergji Cici

University of Kansas - School of Business

Mario Hendriock

University of Cologne - Department of Finance; University of Cologne - Centre for Financial Research (CFR)

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR)

Date Written: December 19, 2019

Abstract

We examine how labor mobility restrictions in the form of non-compete clauses in employment contracts affect employee behavior. Using the mutual fund industry as testing laboratory, we show that fund managers respond to higher job termination costs due to increased enforceability of non-compete clauses by increasing their contribution to their employer’s profitability. They do so by improving their fund performance, while also increasing window dressing to attract new customers and increase fee revenues. Furthermore, the change in incentives disciplines managers’ risk taking, as shown by noticeable reductions in their portfolio risk, portfolio deviations from peers, and engagement in fund tournaments.

Keywords: labor mobility, non-compete clauses, mutual funds, career concerns

JEL Classification: D86, G23 K12, K31, M5

Suggested Citation

Cici, Gjergji and Hendriock, Mario and Kempf, Alexander, The Impact of Labor Mobility Restrictions on Managerial Actions: Evidence from the Mutual Fund Industry (December 19, 2019). AFA 2019 Atlanta Meetings Paper, Available at SSRN: https://ssrn.com/abstract=3151473 or http://dx.doi.org/10.2139/ssrn.3151473

Gjergji Cici (Contact Author)

University of Kansas - School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-3873 (Phone)

HOME PAGE: http://business.ku.edu/gjergji-cici

Mario Hendriock

University of Cologne - Department of Finance ( email )

Cologne, 50923
Germany

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR) ( email )

Cologne, 50923
Germany
+49 221 470 2714 (Phone)
+49 221 470 3992 (Fax)

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