Is Fraud Contagious? Co-Worker Influence on Misconduct by Financial Advisors

66 Pages Posted: 13 Mar 2015 Last revised: 25 Jan 2018

See all articles by Stephen G. Dimmock

Stephen G. Dimmock

Nanyang Technological University - Division of Finance

William Christopher Gerken

University of Kentucky - Finance

Nathaniel Graham

Texas A&M International

Date Written: June 20, 2017

Abstract

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

Keywords: Financial advisors, Financial misconduct, Fraud, Social networks, Peer effects, Career networks

JEL Classification: D18, G20, G24, G28, K22

Suggested Citation

Dimmock, Stephen G. and Gerken, William Christopher and Graham, Nathaniel, Is Fraud Contagious? Co-Worker Influence on Misconduct by Financial Advisors (June 20, 2017). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2577311 or http://dx.doi.org/10.2139/ssrn.2577311

Stephen G. Dimmock

Nanyang Technological University - Division of Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

William Christopher Gerken (Contact Author)

University of Kentucky - Finance ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

HOME PAGE: http://www.willgerken.com

Nathaniel Graham

Texas A&M International ( email )

Laredo, TX 78041-1900
United States

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