We find that local religious social norms mitigate professional misconduct by financial advisors. Using publicly disclosed misconduct data, we find that financial advisors working in areas with greater religious participation are less likely to violate ethical standards. When advisors move to counties with greater religious participation, their misconduct rates decrease. The effect of local religiosity is robust across population density levels, misconduct types, and market conditions. We strengthen identification by using shocks to religious participation following local disclosures of sexual abuse by Catholic priests. The findings show that local religiosity restrains misconduct not only in previously studied corporate financial settings but also when professionals provide financial services to individuals and households.

We explore the impact of overlapping institutional ownership (OIO) within supply chains on the earnings management practices of supplier firms. Utilizing a dataset of U.S. publicly traded supplier firms from 1988 to 2016, we discover that suppliers with institutional ownership overlapping with their major customers exhibit reduced levels of discretionary accruals. This finding implies that such overlap discourages suppliers from engaging in upward earnings management through the manipulation of discretionary accruals. We also find that OIO curtails accrual-based earnings management by enhancing the relationship between supply chain partners and bolstering external monitoring. Additionally, we find that OIO also mitigates the extent of real earnings management undertaken by the supplier firm. These findings remain robust after addressing potential endogeneity concerns. Our results underscore the significant role of OIO within supply chains in curbing both accrual-based and real earnings management by supplier firms.

This article proposes an innovative method to assess borrowers’ creditworthiness in consumer credit markets by conducting machine-learning-based analyses on real-time video information that records borrowers’ behavior during the loan application process. We find that the extent of borrowers’ micro-facial expressions of happiness is negatively associated with loan delinquency likelihood, while the degree of fear expressions is positively associated with delinquency risk. These results are consistent with two economic channels relating to the adequacy and uncertainty of borrowers’ future income, drawn from the extant psychology and economics literature. Our study provides important practical implications for fintech lenders and policymakers.

Regulatory punishment in an oligopolistic credit rating market can be costly. Utilizing the Chinese bond market’s unique features, particularly a third-party rating agency, we investigate the regulatory suspension of Dagong Rating by Chinese regulators and its market impact. The punishment initially deters Dagong but diminishes the quality of its ratings post-punishment, altering market competition. Upon returning, Dagong inflates ratings to regain market share, reflecting a “temporary suppression” strategy. Non-Dagong agencies respond by adjusting their ratings; higher power agencies lower ratings, while lower power agencies raise them to stay competitive. Investors remain skeptical of these inflated ratings. Despite Dagong’s suspension, we find no significant differences in bond or stock price reactions between Dagong-rated and non-Dagong-rated firms, suggesting investors did not penalize Dagong-rated entities. This study highlights the complex dynamics and unintended consequences of regulatory interventions in the credit rating market.