Does Local Competition and Firm Market Power Affect Investment Adviser Misconduct?

Michael Gelman, Zaheer Khan, Amir Shoham, Shlomo Y. Tarbac* (Corresponding Author)

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)
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This paper examines the impact of local competition and local firm market power on misconductby analyzing the investment adviser market. The study is based on an extensive sample of morethan 3.8 million employee-year observations of investment advisers resulting in 709,416 firmcounty-year observations over 12 years. The findings show that a firm’s county-level marketpower and county market competition have a negative influence on investment advisermisconduct. The result is robust to a battery of empirical tests. We show that a firm exhibits lowerlevels of misconduct in counties in which it has greater local market power. We also identify theeffect of local competition and market power on misconduct using two exogenous shocks, mergersand acquisitions (M&As) and the end of a local monopoly. We establish adviser employmentstability as a novel channel for explaining the impact of local competition and firm market poweron misconduct.
Original languageEnglish
Article number101810
Number of pages14
JournalJournal of Corporate Finance
Early online date3 Dec 2020
Publication statusPublished - Feb 2021


  • misconduct
  • corporate fraud
  • Investment adviser
  • Local competition
  • Local market power
  • HHI
  • Misconduct
  • Corporate fraud


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