The importance of local individualistic culture and media coverage: Evidence from corporate innovation and financial adviser misconduct
Creators: name: Zhang, Huixuan
Publisher: name: Macquarie University
Year: 2025
Subjects: classificationCode: 350202
subject: Finance

description: In recent years, the literature related to the impacts of informal institutions (i.e., norms, customs, culture, and media) on accounting, finance, and economic outcomes has been growing. As informal institutions are important components of the social environment in which an individual lives and works, they inevitably affect an individual’s behavior as well as business practices and policies. This thesis contributes to the literature by focusing on the two key elements of informal institutions – culture (i.e., individualism) and media coverage, and examines how local individualistic culture and media coverage influence individual behavior.Firstly, this thesis focuses on individual-level variation in the individualistic background and explores the relation between the CEO’s individualistic cultural background and corporate innovation. Using hand-collected data on birthplaces of U.S.-born CEOs, the thesis provides robust evidence that the presence of CEOs who were born in frontier counties with a higher level of individualistic culture promotes innovation performance. Firms led by such CEOs increase both quantity and quality of innovation outputs, measured by the number of patents, citation-weighted patents, and the market value of patents. Besides innovation performance, the thesis further shows that the presence of more individualistic CEOs influences the innovation style, leading the firm to focus more on breakthrough innovation. The extended analysis illustrates that CEOs’ individualistic background promotes corporate innovation through building an innovation-orientated corporate culture and accumulating human capital by increasing the inflow of inventors.Secondly, this thesis examines how local individualistic culture impacts professional misconduct by financial advisers. The thesis documents that financial advisers who are located in counties with a higher level of individualistic culture are less likely to commit professional misconduct. The effect of local individualistic culture on adviser misconduct is stronger for male advisers, experienced advisers, advisers with a prior misconduct record, and is more pronounced during the financial crisis. I also find that local individualism directly affects adviser misconduct. Moreover, advisers who committed misconduct have a propensity to move to counties with a relatively lower level of individualism than that of their previous employment location. Overall, these findings highlight the importance of the local cultural environment to financial market ethics.Finally, due to an increasing concern about common occurrence of financial adviser misconduct, this thesis examines whether the local press is an effective governance mechanism for deterring and inhibiting the misbehavior by financial advisers. Using local newspaper closure as a negative shock to the local press, the thesis finds that financial advisers who are located in counties with newspaper closures are more likely to commit misconduct. It also finds that the effect of local newspaper closures concentrates on customer-related financial misconduct and is more pronounced for advisers residing in counties with lower market competition. The extended analyses show that advisers are more likely to move to counties with a weaker local press monitoring environment following their misconduct. Furthermore, firms located in counties with closure events experience a greater net inflow of advisers with misconduct records than those without. These results suggest that local newspapers are an important monitor of individual unethical behaviors and underscore the importance of media scrutiny for the health of the local adviser market.