Local Newspaper Closures and Financial Adviser Misconduct

Abstract

We examine whether the local press is an effective governance mechanism for deterring and inhibiting financial adviser misconduct. Using local newspaper closure as a negative shock to the local press, we find that financial advisers who are located in counties with newspaper closures are more likely to commit misconduct. We also find that the effect of local newspaper closures concentrates on customer-related financial misconduct and is more pronounced for advisers residing in counties with lower market competition. Our extended analysis shows that advisers are more likely to move to counties with a weaker local press monitoring environment following their misconduct. Furthermore, firms located in counties with closure events experience a greater net inflow of advisers with misconduct records than those without. Our results suggest that local newspapers are an important monitor of individual unethical behaviors and highlight the importance of media scrutiny for the health of the local adviser market.

Keywords: Financial adviser; Misconduct; Local newspapers; Media coverage

JEL Classification: D18, G20, G24