Social Capital and Individual Ethics: Evidence from Financial Adviser Misconduct

We show that social capital has a strong mitigating effect on financial adviser misconduct in the United States. Moreover, advisers who have committed misconduct are also more likely to relocate to counties with a relatively lower level of social capital than that of his previously residing county. These findings provide support for both the deterrence and displacement effects of social capital on financial adviser misconduct, and are robust to tests that address potential endogeneity concerns. Our results shed new light on social capital as an informal governing and monitoring mechanism against individual unethical behavior.

Automated summary

This study shows that social capital plays a strong mitigating effect on financial adviser misconduct in the United States, with misconducted advisers more likely to relocate to areas with lower levels of social capital. These findings suggest that social capital can act as an informal governing and monitoring mechanism against individual unethical behavior.