VGSF - WU Vienna - LC

Youchang Wu, University of Oregon, Lundquist College of Business

Campus WU D3.0.225 11:00 - 12:15

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Youchang Wu from the Uni­versity of Ore­gon, Lun­dquist Col­lege of Busi­ness to present his re­search pa­per.
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Private Equity and Fin­an­cial Ad­viser Mis­con­duct

Does own­er­ship by private equity firms en­cour­age or de­ter fin­an­cial mis­con­duct? We ex­am­ine this is­sue by ana­lyz­ing the re­cords of in­di­vidual fin­an­cial ad­visers around buy­outs of in­vest­ment ad­vis­ory firms by private equity. Our es­tim­ates sug­gest that private equity own­er­ship leads to an in­crease of 147% in the per­cent­age of the ac­quired firm's fin­an­cial ad­visers com­mit­ting mis­con­duct. While the mis­con­duct rate of the ac­quired firms is only about 40% of the in­dustry aver­age be­fore the buy­out, it be­comes on par with the in­dustry aver­age after the buy­out. With­in-ad­viser vari­ation ac­counts for 89% of the in­crease in the ad­viser's mis­con­duct prob­ab­il­ity. The in­crease in mis­con­duct is stronger in firms with higher post-buy­out growth in as­sets un­der man­age­ment per ad­viser and is con­cen­trated in firms whose cli­ents in­clude re­tail cus­tomers. Our res­ults sug­gest that a heightened profit motive of ad­vis­ory firms is likely to com­prom­ise the in­terest of fin­an­cially un­soph­ist­ic­ated ad­visees.

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