When Harry Fired Sally: The Double Standard in Punishing Misconduct
79 Pages Posted: 13 Mar 2017 Last revised: 29 Jan 2018
Date Written: December 2017
Abstract We examine gender discrimination in misconduct punishment in the financial advisory industry. Following an incidence of misconduct, female advisers are 20% more likely to lose their jobs and 30% less likely to find new jobs relative to male advisers. Females face harsher outcomes despite engaging in misconduct that is 20% less costly and having a substantially lower propensity towards repeat offenses. For females, a disproportionate share of misconduct complaints are initiated by the firm rather than by customers or regulators. Moreover, firms with a greater percentage of female executives at the firm or at the local branch discriminate less in both separation and hiring. There is no evidence that the observed gender differences proxy for other adviser characteristics, such as productivity or behavior such as career interruptions. We extend our analysis to explore discrimination against ethnic minorities among male advisers, and find similar patterns of “in-group” tolerance. Our evidence is inconsistent with statistical discrimination, and suggests that managers are more forgiving of missteps among members of their own gender/ethnic group. We explore whether this bias arises from miscalibrated beliefs about misconduct, or from taste-based discrimination. The observed discrimination appears to be context-dependent since it diminishes with adviser's tenure within the firm, suggesting that miscalibrated beliefs due to stereotyping may play a critical role in the observed discrimination.
Keywords: Financial Advisers, Brokers, Gender Discrimination, Consumer Finance, Financial Misconduct and Fraud, FINRA
JEL Classification: J71, G24, G28, D18
Suggested Citation: Suggested Citation