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CESifo Economic Studies Advance Access originally published online on January 7, 2009
CESifo Economic Studies 2009 55(3-4):569-594; doi:10.1093/cesifo/ifn038
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© The Author 2009. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Bonus Payments and Fund Managers’ Behavior: Transatlantic Evidence

Thomas P. Gehrig*, Torben Lütje{dagger} and Lukas Menkhoff{ddagger}

* Department of Economics, University of Freiburg, Platz der Alten Synagoge, 79085 Freiburg, Germany, thomas.gehrig{at}vwl.uni-freiburg.de
{dagger} Department of Economics, Leibniz Universitaet Hannover, Koenigsworther Platz 1, 30167 Hannover, Germany, torben.luetje{at}db.com
{ddagger} Department of Economics, Leibniz Universitaet Hannover, Koenigsworther Platz 1, 30167 Hannover, Germany, menkhoff{at}gif.uni-hannover.de

This questionnaire survey of fund managers in USA, Germany, and Switzerland documents a distinctly positive influence of bonus payments on investment behavior on both sides of the Atlantic. Higher bonus payments are significantly related to higher working effort but not to risk-taking. They also seem to induce fund managers to rely more on fundamental information. Findings within regions are confirmed by Transatlantic evidence as US fund managers receive larger bonuses but also show the effects to a higher degree. The effects documented are stronger for relative than for absolute performance assessment. (JEL-Codes: G23, G14)

Key Words: Fund managers • incentives • fundamental information


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