Born to be Bad? Childhood Exposure to Misbehavior and the Culture of Professional Misconduct

Abstract

Using novel data on financial advisors' childhood residences, we show that advisors raised in U.S. counties with less ethical cultures are more likely to commit misconduct as adults. Our identification strategy exploits variation in childhood backgrounds among advisors working together in the same branch office in adulthood. Exploiting timing of moves during childhood, we find evidence of dosage effects. These individual childhood influences commingle to form firm-level cultures. We find these childhood influences are amplified when coworkers come from less diverse backgrounds. These findings help explain why firms under similar economic and regulatory environments exhibit considerable variation in malfeasance rates.

Keywords: Financial misconduct, Financial Advisors, Household Finance, Culture, Diversity

JEL Classification: D18, G24, M14, R30