Trust Busting: The Effect of Fraud on Investor Behavior

• 成果类型: Article
• 署名作者: Gurun, Umit G.; Stoffman, Noah; Yonker, Scott E.
• 署名单位: University of Texas System; University of Texas Dallas; National Bureau of Economic Research; Indiana University System; Indiana University Bloomington; Cornell University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhx058
• 发表日期: 2018
• 页码: 1341
• 关键词: Operational risk; Hedge funds; CRISIS; MARKET

摘要

We study the importance of trust in the investment advisory industry by exploiting the geographic dispersion of victims of the Madoff Ponzi scheme. Residents of communities that were exposed to the fraud subsequently withdrew assets from investment advisers and increased deposits at banks. Additionally, exposed advisers were more likely to close. Advisers who provided services that can build trust, such as financial planning advice, experienced fewer withdrawals. Our evidence suggests that the trust shock was transmitted through social networks. Taken together, our results show that trust plays a critical role in the financial intermediation industry.