Childhood Exposure to Misbehavior and the Culture of Financial Misconduct

Abstract

Using novel data on financial advisors' childhood residences, we show that advisors raised in 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. Influences are amplified when coworkers come from less diverse geographic backgrounds. Our findings suggest a lack of diversity can create echo-chambers of unethical conduct and can explain why firms operating under the same economic and regulatory environment exhibit variation in malfeasance rates.

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

JEL Classification: D18, G24, M14, R30