Selection and Socialization in the Finance Industry: Longitudinal Evidence on Finance Professionals’ Preferences for Money and Risk

Abstract

In the wake of the global financial crisis, many studies have sought to assess the values and culture among professionals in finance. However, prior research is mostly cross-sectional and does not consider the role of self-selection and socialization — individuals with certain values are more likely to choose and remain working in finance and employees internalize the values and culture of their industry. This paper analyzes in a hazard model individual-level panel data from 464 banker in Germany surveyed over 2,000 times between 2000 and 2017. We assess the role of selection and socialization in shaping values in the finance industry. Results indicate that preferences for risk and money are already present before they start to work in finance and are not socialized in the sector. The results indicate a business norm in the financial sector that attracts professionals who think in a riskier and more income-focused manner. Average risk preferences of financial professionals were highest in the immediate years before the global financial crisis in 2007/08. We conclude that changing the culture in the finance industry requires a concerted effort involving recruitment and retention.

Keywords: monetary motivation, risk preferences, financial sector, selection, socialization

JEL Classification: D64, D81, D53, D90, M5