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Rankings and Risk-Taking in the Finance Industry

Journal article
Authors Michael Kirchler
F. Lindner
U. Weitzel
Published in Journal of Finance
Volume 73
Issue 5
Pages 2271-2302
ISSN 0022-1082
Publication year 2018
Published at Department of Economics
Pages 2271-2302
Language en
Links dx.doi.org/10.1111/jofi.12701
Keywords path-goal theory, market professionals, portfolio choice, banking, industry, field experiment, incentives, aversion, competition, impact, pay, Business & Economics, armer c, 1991, american economic review, v81, p971
Subject categories Economics and Business

Abstract

Rankings are omnipresent in the finance industry, yet the literature is silent on how they impact financial professionals' behavior. Using lab-in-the-field experiments with 657 professionals and lab experiments with 432 students, we investigate how rank incentives affect investment decisions. We find that both rank and tournament incentives increase risk-taking among underperforming professionals, while only tournament incentives affect students. This rank effect is robust to the experimental frame (investment frame vs. abstract frame), to payoff consequences (own return vs. family return), to social identity priming (private identity vs. professional identity), and to professionals' gender (no gender differences among professionals).

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