External Labor Market Punishment in Finance

95 Pages Posted: 23 Mar 2023 Last revised: 27 Sep 2023

See all articles by Naser Hamdi

Naser Hamdi

Equifax, Inc.

Ankit Kalda

Indiana University - Kelley School of Business - Department of Finance

Avantika Pal

Washington University in St. Louis - John M. Olin Business School

Date Written: March 17, 2023

Abstract

We document that finance employees involuntarily separated for misconduct earn 2.8% to 8.6% higher income than similar employees laid-off for no fault. Our results are most consistent with assortative matching in the finance labor market: firms more likely to engage in misconduct are also more likely to hire employees separated for misconduct and pay a wage premium for them. Finance is unique in that these patterns are reversed for all other sectors. One hypothesis explaining our findings is that most products and services in finance are based on future cash flows which makes it potentially easier to camouflage such behavior.

Keywords: Misconduct, punishment, finance sector, layoffs, earnings, employer-employee match

JEL Classification: G20, G29, J44, K42

Suggested Citation

Hamdi, Naser and Kalda, Ankit and Pal, Avantika, External Labor Market Punishment in Finance (March 17, 2023). Kelley School of Business Research Paper No. 2023-4392382, Available at SSRN: https://ssrn.com/abstract=4392382 or http://dx.doi.org/10.2139/ssrn.4392382

Naser Hamdi

Equifax, Inc. ( email )

Atlanta, GA
United States

Ankit Kalda (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Avantika Pal

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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