Does it Matter if Stockbrokers Get Caught Cheating? Consequences of Misconduct on Careers

Abstract

This analysis investigates the consequences of misconduct on the careers of U.S. stockbrokers. The basic expectation is that, besides official penalties, individual-level misconduct results in reputational damage and impaired future labor market opportunities. However, the consequences of misconduct seem mild on Wall Street where misconduct could be perceived by employers as a sign of aggressiveness or a cost of doing business. To address this ambiguity, we investigate the career consequences of one form of Wall Street misconduct where stockbrokers cheat their customers by generating higher fees through conducting unnecessary, unsuitable, or unauthorized transactions. Specifically, we examine whether visible instances of misconduct are associated with higher/lower likelihood of exiting the profession and being able to leave one’s current employer. We also examine whether a stockbroker’s tenure moderates the consequences of misconduct as misconduct may be a weaker signal to the market the more experienced ...