Misconduct Synergies

56 Pages Posted: 14 Oct 2021

See all articles by Emmanuel Yimfor

Emmanuel Yimfor

University of Michigan, Stephen M. Ross School of Business

Heather Tookes

Yale University - Yale School of Management; Yale University - International Center for Finance

Date Written: October 13, 2021

Abstract

Do corporate control transactions discipline the labor force?  We use the investment advisory industry as a laboratory to test for evidence of improvements in employee misconduct following M&A events ("misconduct synergies").  Consistent with synergies, we find that new disclosures of employee misconduct in the combined firm drop by between 25 and 34 percent following mergers.  However, contrary to the idea that better-performing firms tend to purchase poor-performing ones, we find that both targets and acquirers have better misconduct records than the industry's average firm. Moreover, we find evidence of assortative matching on misconduct, where low (high) misconduct acquirers tend to purchase low (high) misconduct targets. This suggests complementarities, where target and acquirer mechanisms for monitoring and disciplining employees are more effective when used together, consistent with Rhodes-Kropf and Robinson (2008). Indeed, target and acquiring firm employees have similar pre-merger misconduct records on average, but the sensitivity of employment separation to misconduct increases post-merger, suggesting improved disciplinary mechanisms.

Keywords: Investment Advisers, M&A, Synergies, Broker Misconduct, BrokerCheck

JEL Classification: G24, G30, G34, M14

Suggested Citation

Yimfor, Emmanuel and Tookes, Heather, Misconduct Synergies (October 13, 2021). Available at SSRN: https://ssrn.com/abstract=3942188 or http://dx.doi.org/10.2139/ssrn.3942188

Emmanuel Yimfor (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States

Heather Tookes

Yale University - Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

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