European hedge funds: share restrictions, incentives and performance

Abstract

We propose new approaches to examine the relation between alternative share restrictions and both funds' performance, and other features of European hedge funds. Using a sample of 1616 European hedge funds, our results suggest that all types of share restrictions allow European hedge fund managers to efficiently manage their assets in times of non-crisis as well as during crisis periods. Furthermore, we find that funds with stronger share restriction are associated with lower level of average asset illiquidity and the performance is an important determinant of European hedge funds’ choice of share restrictions. Finally the choice of share restriction is also related to other factors such as the managers compensation structure, fund’s age, dividend policy, leverage.