Supervisor Influence on Employee Misconduct

57 Pages Posted: 27 Jul 2020 Last revised: 18 Jul 2022

See all articles by Zachary T Kowaleski

Zachary T Kowaleski

University of Texas at Austin

Andrew Sutherland

Massachusetts Institute of Technology

Felix Vetter

University of Mannheim

Date Written: July 15, 2022

Abstract

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

Kowaleski, Zach and Sutherland, Andrew and Vetter, Felix, Supervisor Influence on Employee Misconduct (July 15, 2022). Available at SSRN: https://ssrn.com/abstract=3646617 or http://dx.doi.org/10.2139/ssrn.3646617

Zach Kowaleski

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Andrew Sutherland (Contact Author)

Massachusetts Institute of Technology ( email )

100 Main Street
Cambridge, MA 02142
United States

HOME PAGE: http://https://mitsloan.mit.edu/faculty/directory/andrew-gordon-sutherland

Felix Vetter

University of Mannheim ( email )

L 7, 3-5
Mannheim, 68161
Germany

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