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

This study investigates the determinants of white-collar crime and its increased prevalence in the aftermath of the global financial crisis. We link detailed individual police records on criminal activity to administrative data and hypothesize that exposure to financial misconduct affects individuals’ perceptions of their own future criminal activity. Our results show that customers of troubled retail banks prosecuted for financial misconduct are subsequently more likely to be convicted of a white-collar crime, relative to customers of other troubled, but non-criminal banks. Our research design allows us to investigate various mechanisms for this transmission, and suggests that non-pecuniary factors are of particular importance. We also 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.