Pay-Performance Sensitivity and Risk-Taking Behaviors: Evidence from Closed-End Funds

41 Pages Posted: 6 May 2015 Last revised: 16 Nov 2015

See all articles by Tianna Yang

Tianna Yang

The University of Manchester - Division of Accounting and Finance

Wenxuan Hou

University of Edinburgh - Business School

Date Written: May 4, 2015

Abstract

The managers’ pay-performance sensitivity (PPS) of closed-end funds is explicitly specified in the management contract as the marginal rate of funds’ net asset value. By using the sample of US closed-end funds from 2006 to 2009, this paper investigates the relationship between the PPS and risk-taking behaviors of fund managers. After controlling for endogeneity, we find that fund return volatility and fund PPS positively determine each other. Furthermore, the positive relationship is more pronounced for closed-end funds engaging in alternative investments or in emerging markets.

Keywords: closed-end fund, pay-performance sensitivity, risk-taking behavior, alternative investments, emerging market

JEL Classification: G23, M12, M52

Suggested Citation

Yang, Tianna and Hou, Wenxuan, Pay-Performance Sensitivity and Risk-Taking Behaviors: Evidence from Closed-End Funds (May 4, 2015). Available at SSRN: https://ssrn.com/abstract=2602336 or http://dx.doi.org/10.2139/ssrn.2602336

Tianna Yang (Contact Author)

The University of Manchester - Division of Accounting and Finance ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom
+441612754475 (Phone)
+441612754023 (Fax)

Wenxuan Hou

University of Edinburgh - Business School ( email )

29 Buccleuch Place
EDINBURGH, Scotland EH89JS
United Kingdom

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