Born to Be Bad

Abstract

Using a geographic measure of unethical culture developed by Parsons, Sulaeman and Titman (2018) and a novel dataset of financial advisors' childhood residences, we show that advisors who grow up in U.S. counties with less ethical cultures are more likely to commit misconduct as adults. Our identification strategy exploits variation in childhood backgrounds between advisors working together in the same branch office in adulthood, thereby overcoming the reflection problem. Our results are robust to controlling for other factors from the early-life experiences literature such as income, education, ethnicity and religiosity. We find that areas with high concentrations of advisors that hail from less ethical cultures have lower levels of household equity participation. Our findings have important implications for how regional cultural norms regarding misconduct evolve.

Keywords: Financial misconduct, Financial Advisors, Household Finance, Stock Market Participation, Culture

JEL Classification: G2, G23, K4