Is Fraud Contagious? Coworker Influence on Misconduct by Financial Advisors

Stephen G. Dimmock, William C. Gerken, Nathaniel P. Graham

Research output: Contribution to journalArticlepeer-review

66 Scopus citations


Using a novel data set of U.S. financial advisors that includes individuals' employment histories and misconduct records, we show that coworkers influence an individual's propensity to commit financial misconduct. We identify coworkers' effect on misconduct using changes in coworkers caused by mergers of financial advisory firms. The tests include merger-firm fixed effects to exploit the variation in changes to coworkers across branches of the same firm. The probability of an advisor committing misconduct increases if his new coworkers, encountered in the merger, have a history of misconduct. This effect is stronger between demographically similar coworkers.

Original languageEnglish
Pages (from-to)1417-1450
Number of pages34
JournalJournal of Finance
Issue number3
StatePublished - Jun 2018

Bibliographical note

Funding Information:
∗Stephen G. Dimmock is in the Division of Banking & Finance, Nanyang Technological University. William C. Gerken is in the Department of Finance & Quantitative Methods, University of Kentucky. Nathaniel P. Graham is in the Division of International Banking and Finance Studies, Texas A&M International University. We are grateful to Leonce Bergeron, John Chalmers, Gjergji Cici, Thomas Dudley, Joe Farizo, Allaudeen Hameed, Kristine Hankins, Michael Hertzel, Pat Hud-dleston, Zsuzsa Huszár, Russell Jame, Bill Johnson, Simi Kedia, Jussi Keppo, Ross Levine, Adair Morse, Andy Puckett, Wenlan Qian, David Reeb, Tyler Shumway, Kenneth Singleton (the Editor), Anand Srinivasan, Johan Sulaeman, Tracy Wang, Chishen Wei, Scott Weisbenner, Bernard Yeung; an Associate Editor; two anonymous referees; seminar participants at Hong Kong Polytechnic University, National University of Singapore, Texas Christian University, University of New South Wales, and West Virginia University; and participants at the 2016 American Finance Association, 2014 American Law and Economics, 2015 European Finance Association, Federal Reserve Bank of New York Economics of Culture, Federal Reserve Bank of New York Conference on Culture and Financial Stability, 2014 Financial Management Association, Jim and Jack, NTU Finance, 2015 SFS Cavalcade, Singapore Scholars Symposium, and 2015 Western Finance Association conferences. We also thank the Institute for Fraud Prevention for financial support and the Arkansas Securities Department (and Ann McDougal, in particular), the Florida Office of Financial Regulation, and the New York State Office of the Attorney General for providing assistance with the data. We have no conflicts of interest with interested parties (see the detailed disclosure statement in the online version of this article).

Publisher Copyright:
© 2018 the American Finance Association

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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