Learning on the Job? Employee Mobility in the Asset Management Industry

We present a new mechanism by which prior employment can influence transitions to other firms. We propose that some employees divert effort toward unproductive activities to learn about their own fitness for alternative employment. Based on the results of this costly learning experience, or "experiment," some employees will transition into other firms or launch their own ventures, while others will remain at the incumbent firm. We develop a theoretical model to explicate these propositions, and test them using four datasets from the mutual fund and hedge fund industries. We find evidence that managers who engage in excessive risk-taking at mutual funds are subsequently more likely to join or start hedge funds, even though there is little evidence that this risk-taking is intended to signal quality to outside observers. Taken together, our findings suggest that learning about one's own fitness for alternative employment, through experimentation on the job, is an important mechanism for enabling employee mobility.