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Is Fraud Contagious? Coworker Influence on Misconduct by Financial Advisors
Author(s) -
DIMMOCK STEPHEN G.,
GERKEN WILLIAM C.,
GRAHAM NATHANIEL P.
Publication year - 2018
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12613
Subject(s) - misconduct , commit , financial fraud , business , blacklisting , psychology , actuarial science , finance , accounting , political science , law , computer science , database
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.