Is Fraud Contagious? Coworker Influence on Misconduct by Financial Advisors

Is Fraud Contagious? Coworker Influence on Misconduct by Financial Advisors

  • STEPHEN G. DIMMOCK
  • WILLIAM C. GERKEN
  • NATHANIEL P. GRAHAM

Article first published online: 3rd February 2018 DOI: 10.1111/jofi.12613

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.

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