The Geography of Financial Misconduct
We find that a firm's tendency to engage in financial misconduct increases with the misconduct rates of neighboring firms. This appears to be caused by peer effects, rather than exogenous shocks like regional variation in enforcement. Effects are stronger among firms of comparable size, and among CEOs of similar age. Moreover, local waves of financial misconduct correspond with local waves of non-financial corruption, such as political fraud.
We especially thank Jonathan Karpoff, Allison Koester, Scott Lee, and Gerald Martin for making their data on financial misconduct available. We also thank Serdar Dinc, Ray Fisman, Francisco Gallego, and seminar participants at Southern Methodist University, 2014 SFS Cavalcade, 2014 NBER Corporate Finance Workshop, and the 7th International Conference at Finance UC for useful comments and suggestions. All errors are ours. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
CHRISTOPHER A. PARSONS & JOHAN SULAEMAN & SHERIDAN TITMAN, 2018. "The Geography of Financial Misconduct," The Journal of Finance, vol 73(5), pages 2087-2137.