Experience is the Best Teacher: Financial Misconduct and White-Collar Crime

Authors: Steffen Andersen (Copenhagen Business School and CEPR), Tobin Hanspal (Goethe University and SAFE) and Kasper Meisner Nielsen (Hong Kong University of Science and Technology)

Title: Experience is the Best Teacher: Financial Misconduct and White-Collar Crime

Abstract: This study investigates the determinants of white-collar crime and it’s increased prevalence in the aftermath of the global financial crisis. We hypothesize that experiences with financial misconduct affect the perceived costs and returns to individuals’ own future criminal activity. Our results show that the experience of losing investments from retail banks prosecuted for financial misconduct increases the subsequent probability of being convicted of a white-collar crime. Our findings uncover strong effects at the extensive margin: the increase in white-collar crime is caused almost exclusively by investors who had no prior history of criminal activity. These experiences have no effect on other criminal felonies - such as property theft or violent crime.