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 (GFC), many studies have sought to assess the preferences of professionals working in finance. However, prior research is cross-sectional and does not test the role of selection and socialization—individuals with certain preferences are more likely to start and remain working in finance and employees internalize the values of their industry. We use longitudinal data from Germany to examine how individuals’ preferences for money and risk affect their likelihood of starting/stopping to work as a finance professional. In addition, we consider how socialization in the finance industry affects preferences for money and risk. Results indicate that individuals that are more strongly motivated by money and more risk tolerant are more prone to enter the finance industry but not less prone to exit the industry. Results also do not indicate that finance professionals’ preferences for money and risk become significantly stronger after socialization in the finance industry. We conclude that preferences for money and risk among finance professionals are mostly shaped by individuals entering the finance industry. Practical implication is that policies aimed at changing the preferences in the finance industry are best targeted at recruitment, at least in Germany.

Keywords: Financial sector, selection, Socialization, culture, Monetary motivation, Risk tolerance