Childhood Exposure to Misbehavior and the Culture of Financial Misconduct

Abstract

This paper examines the impact of childhood cultural upbringing on financial advisor misconduct using novel data on advisors’ childhood addresses. We find that an advisor’s childhood location significantly predicts misconduct, with exposure to misbehavior culture during childhood playing a stronger role than exposure during adulthood. Addressing endogeneity concerns, we conduct several tests that support the notion that our results reflect cultural exposure rather than advisors’ employment choices, location preferences, local conditions, family characteristics, or clientele characteristics. Our findings underscore the formative influence of culture in shaping financial advisors’ personal ethics and could help us understand and prevent financial misconduct.