Production Complementarities in Asset Management

65 Pages Posted: 5 Oct 2021 Last revised: 11 Oct 2021

See all articles by Galit Ben Naim

Galit Ben Naim

affiliation not provided to SSRN

Lu Han

University of Toronto - Rotman School of Management

Stanislav Sokolinski

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: October 4, 2021

Abstract

Incentive provision is expected to be a key driver of asset managers’ compensation, yet empirical evidence on performance-based pay has been limited and mixed. This paper delivers a novel perspective on managerial incentives by examining the role of production complementarities between managers and firms, and quantifying to what extent such complementarities are internalized into compensation. Production complementarities naturally arise in asset management because a firm can influence a manager’s expected productivity by teaming her up with the right skill set and by advertising her performance to investors. Different managers benefit from firm externalities differently, and hence face different trade-offs between their current monetary compensation and firm support. Using a unique registry-based dataset on the production and compensation of Israeli mutual fund managers, we find that managers working with more skilled teammates and receiving more advertising receive lower salary today in return for higher expected productivity. Such effects are stronger for more skilled and less visible managers. The results are consistent with the incentive provision theory for forward-looking agents in the presence of production complementarities.

Keywords: Mutual Funds, Portfolio Managers, Compensation

Suggested Citation

Ben Naim, Galit and Han, Lu and Sokolinski, Stanislav, Production Complementarities in Asset Management (October 4, 2021). Available at SSRN: https://ssrn.com/abstract=3935811 or http://dx.doi.org/10.2139/ssrn.3935811

Galit Ben Naim

affiliation not provided to SSRN

Lu Han

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Stanislav Sokolinski (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

111 Washington Avenue
Newark, NJ 07102
United States

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