Compensation design and career concerns of fund manager

Ching Mann Huang, Len Kuo Hu, Hsin-Hong Kang

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)


We develop an optimal incentive contract for the fund manager with career concerns. Drawing upon the framework of Gibbons and Murphy (1992), we restructure the performance of fund manager with emphasis on the multiplicative effect of previous effort on the latter period, and derive the positive cross-period linkage of fund manager's efforts. In particular, our study derives that a greater first-period's effort by the fund manager will induce more second-period effort and greater compensation in either fixed or variable (performance-related) portion of the payment. Though the total performance related pay might increase as the result of greater effort in the previous period, we show that the pay-performance sensitivity in the second period will decline. Moreover, the initial wealth increase will motivate the fund manager to exert more effort and induce better performance, but decrease the pay-performance sensitivity in the second period.

Original languageEnglish
Pages (from-to)379-397
Number of pages19
JournalReview of Quantitative Finance and Accounting
Issue number4
Publication statusPublished - 2005 Jun 1

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

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