Is Pay for Performance Effective? Evidence from the Hedge Fund Industry

@inproceedings{Liang2011IsPF,
  title={Is Pay for Performance Effective? Evidence from the Hedge Fund Industry},
  author={Bing Liang and Christopher G. Schwarz},
  year={2011}
}
Using voluntary decisions to limit investment, we investigate if the high pay–performance sensitivities of hedge fund managers cause them to avoid overinvestment. Our results show that the primary objective of hedge fund managers is to hoard assets. We find that for funds closed to new investors, performance shifts from outperformance in the pre-closing period to average performance in the post-closing period. Funds that reopen are still too large to regain their outperformance. We also find… CONTINUE READING

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