Misconduct Synergies

Do corporate control transactions discipline the labor force? Consistent with synergies, new disclosures of employee misconduct in the investment advisory industry drop by between 17 and 22 percent following mergers. Both targets and acquirers have better pre-merger misconduct records than the industry’s average firm and, within the subsample of merging firms, there is assortative matching on misconduct. Merger events facilitate further reductions in misconduct through separations of target firm employees with high misconduct. Many of these employees remain in the industry, suggesting that consolidation plays an important role in the redistribution of misconduct across firms.