When Harry Fired Sally: The Double Standard in Punishing Misconduct

79 Pages Posted: 13 Mar 2017 Last revised: 29 Jan 2018

Mark Egan

Harvard Business School

Gregor Matvos

University of Texas at Austin - Department of Finance

Amit Seru

Stanford University

Multiple version iconThere are 2 versions of this paper

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

Egan, Mark and Matvos, Gregor and Seru, Amit, When Harry Fired Sally: The Double Standard in Punishing Misconduct (December 2017). Available at SSRN: https://ssrn.com/abstract=2931940 or http://dx.doi.org/10.2139/ssrn.2931940

Mark Egan

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Gregor Matvos

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Amit Seru (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

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