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Journal of Finance Vol. 73 No. 3 2018

Is Fraud Contagious? Coworker Influence on Misconduct by Financial Advisors

Stephen G. Dimmock1,2,3,4,5,6,7; William Christopher Gerken1,2,3,4,5,6,7; Nathaniel Graham8,9,1,2,3,7,10

1 Texas A&M International University · 2 Hong Kong Polytechnic University · 3 National University of Singapore · 4 Nanyang Technological University · 5 Federal Department of Finance · 6 Quantitative BioSciences · 7 American Finance Association · 8 International Finance Corporation · 9 Texas Christian University · 10 Marymount University

open access

Abstract

Using a novel data set of U.S. financial advisors that includes individuals' employment histories and misconduct records, we show that coworkers influence an individual's propensity to commit financial misconduct. We identify coworkers' effect on misconduct using changes in coworkers caused by mergers of financial advisory firms. The tests include merger‐firm fixed effects to exploit the variation in changes to coworkers across branches of the same firm. The probability of an advisor committing misconduct increases if his new coworkers, encountered in the merger, have a history of misconduct. This effect is stronger between demographically similar coworkers.

DOI
10.1111/jofi.12613
Volume
73
Issue
3
Pages
1417-1450
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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