Working Paper: NBER ID: w20347
Authors: Christopher A. Parsons; Johan Sulaeman; Sheridan Titman
Abstract: 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.
Keywords: financial misconduct; peer effects; geographic patterns; corporate behavior; local enforcement
JEL Codes: G0; K42; M41; R0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| A firm's likelihood of engaging in financial misconduct (G32) | Local waves of financial misconduct correlate with local waves of non-financial corruption (F65) |
| Misconduct rates of neighboring firms (L20) | Stock prices of firms in regions with exposed misconduct dip (G18) |
| Local enforcement (K40) | A firm's likelihood of engaging in financial misconduct (G32) |
| Regional economic conditions (R11) | A firm's likelihood of engaging in financial misconduct (G32) |
| Misconduct rates of neighboring firms (L20) | A firm's likelihood of engaging in financial misconduct (G32) |