The Impact of COVID-19 on Financial Intermediary Misconduct

Manipulation in financial markets is not only costly to investors and firms; it also has broader detrimental effects as it “harms investor confidence and discourages investor participation in markets” (Comerton-Forde and Putnins 2014, p. 23). As a result, academic literature has sought to determine drivers of manipulation in financial markets, with a recent stream of literature focusing on financial misconduct committed by financial advisors. Researchers have identified various factors that drive financial misconduct, e.g. coworker influence (Dimmock et al. 2018), own misconduct experience (Andersen et al. 2018, Egan et al. 2019), or times of financial crisis (Dimmock et al. 2021). The current crisis caused by the COVID-19 pandemic has created great financial uncertainty (Altig et al. 2020) and significantly changed the way of working, with more than a third of US households shifting to work-from-home (U.S. Census Bureau 2021). Overall, the pandemic has led to “new operational, technological, commercial, and other challenges” (SEC 2020, p.1) for financial advisors and “may have heightened the risks of misconduct” (SEC 2020, p.1).

The master thesis asks whether the COVID-19 pandemic has, driven by financial uncertainty and the shift to work-from-home during the pandemic, affected financial advisor misconduct. First, high volatility in financial markets but also personal financial uncertainty may encourage financial advisors to commit misconduct (see Dimmock et al. 2021). Second, work-from-home offers less managerial oversight, which might encourage misconduct, but also less interaction with other advisors, which may lower unethical behavior influence (see Gino et al. 2009, Dimmock et al. 2018).

The goal of this master thesis is to investigate the effect that the COVID-19 pandemic had on financial advisor misconduct. To do so, the first part of the thesis consists of a literature review on financial market manipulation, particularly financial misconduct, and drivers for committing misconduct. In the second part, an empirical analysis should determine to what extent the COVID-19 pandemic has affected the prevalence of financial advisor misconduct and explore whether it also reinforced previously investigated drivers for committing misconduct.