Supervisor Influence on Employee Misconduct
57 Pages Posted: 27 Jul 2020 Last revised: 18 Jul 2022
Date Written: July 15, 2022
We study the influence of supervisors on employee misconduct at branches of U.S. financial institutions. Individual supervisor fixed effects explain twice as much variation in branch misconduct as firm fixed effects. We find similar evidence when we study supervisors switching firms following mergers or branch closures that are unrelated to misconduct, indicating our results are not spuriously generated by endogenous matching. Our results are concentrated in firms that theory suggests are most likely to delegate authority to supervisors—firms with complex operations, distant branches, and experienced supervisors. Supervisors affect misconduct through their personnel decisions, attention to employees with past misbehavior, and industry rules and ethics training. Our paper is the first to explore the supervisor’s role, distinct from firm-level factors, in influencing corporate misconduct. Overall, our results suggest that supervisors can wield significant influence on misconduct when information asymmetries hamper the effectiveness of firm-level controls.
Keywords: corporate misconduct; control systems; organizational design; supervisors; information asymmetry
JEL Classification: D21; D82; G20, L22; L23; M12; M40
Suggested Citation: Suggested Citation