Insight

Is competition making managers blasÉ about risk?

Researchers find out if increased pressure on managers to outperfom is making them risk takers

While it is accepted wisdom that competition gives rise to a thriving marketplace and makes affordable options available for a range of customers, here’s news that might turn that truism on its head. Researchers Thomas F Cooley, Ramon Marimon and Vincenzo Quadrini theorise that due to the burgeoning size of the financial market and the consequent rise in pay of the sector’s personnel over the past thirty years, the latter’s appetite for risk is on an upswing. With a lot of financial sector companies moving away from the partnership structure, there has been increased pressure on managers to outperform the competition. The researchers say this has translated into lesser commitment on part of managers towards the actual end investors, so much so that they are prone to making riskier investments.

 

Title: Risky investments with Limited Commitment

Source: The National Bureau of Economic Research

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