Institutional distraction and illegal business practices: The role of career concerns and wealth incentives

Daniel Neukirchen; Gerrit Köchling; Peter N. Posch

doi:10.1016/j.jfs.2025.101450

Institutional distraction and illegal business practices: The role of career concerns and wealth incentives

Daniel Neukirchen^*
, Gerrit Köchling
, Peter N. Posch

^*Corresponding author for this work

Department of Economics and Business Economics

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review

Abstract

We exploit exogenous shocks to institutional investors’ portfolios to show that managers engage in significantly more stakeholder-related misconduct when institutional investors are distracted. Additional cross-sectional tests reveal that managerial career concerns and risk-taking equity incentives strongly moderate this relationship, suggesting that managers weigh the potential benefits and risks before engaging in misconduct during these periods. Finally, we provide evidence that the results are more pronounced when especially those institutional investors who are likely to be motivated monitors of the managers become distracted.

Original language	English
Article number	101450
Journal	Journal of Financial Stability
Volume	80
ISSN	1572-3089
DOIs	https://doi.org/10.1016/j.jfs.2025.101450
Publication status	Published - Sept 2025

Keywords

Career concerns
Corporate governance
Corporate social responsibility
Distraction
Institutional investors
Misconduct
Monitoring

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title = "Institutional distraction and illegal business practices: The role of career concerns and wealth incentives",

abstract = "We exploit exogenous shocks to institutional investors{\textquoteright} portfolios to show that managers engage in significantly more stakeholder-related misconduct when institutional investors are distracted. Additional cross-sectional tests reveal that managerial career concerns and risk-taking equity incentives strongly moderate this relationship, suggesting that managers weigh the potential benefits and risks before engaging in misconduct during these periods. Finally, we provide evidence that the results are more pronounced when especially those institutional investors who are likely to be motivated monitors of the managers become distracted.",

keywords = "Career concerns, Corporate governance, Corporate social responsibility, Distraction, Institutional investors, Misconduct, Monitoring",

author = "Daniel Neukirchen and Gerrit K{\"o}chling and Posch, \{Peter N.\}",

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year = "2025",

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language = "English",

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journal = "Journal of Financial Stability",

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Institutional distraction and illegal business practices: The role of career concerns and wealth incentives. / Neukirchen, Daniel; Köchling, Gerrit; Posch, Peter N.
In: Journal of Financial Stability, Vol. 80, 101450, 09.2025.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review

TY - JOUR

T1 - Institutional distraction and illegal business practices

T2 - The role of career concerns and wealth incentives

AU - Neukirchen, Daniel

AU - Köchling, Gerrit

AU - Posch, Peter N.

PY - 2025/9

Y1 - 2025/9

N2 - We exploit exogenous shocks to institutional investors’ portfolios to show that managers engage in significantly more stakeholder-related misconduct when institutional investors are distracted. Additional cross-sectional tests reveal that managerial career concerns and risk-taking equity incentives strongly moderate this relationship, suggesting that managers weigh the potential benefits and risks before engaging in misconduct during these periods. Finally, we provide evidence that the results are more pronounced when especially those institutional investors who are likely to be motivated monitors of the managers become distracted.

AB - We exploit exogenous shocks to institutional investors’ portfolios to show that managers engage in significantly more stakeholder-related misconduct when institutional investors are distracted. Additional cross-sectional tests reveal that managerial career concerns and risk-taking equity incentives strongly moderate this relationship, suggesting that managers weigh the potential benefits and risks before engaging in misconduct during these periods. Finally, we provide evidence that the results are more pronounced when especially those institutional investors who are likely to be motivated monitors of the managers become distracted.

KW - Career concerns

KW - Corporate governance

KW - Corporate social responsibility

KW - Distraction

KW - Institutional investors

KW - Misconduct

KW - Monitoring

UR - https://www.scopus.com/pages/publications/105014206556

U2 - 10.1016/j.jfs.2025.101450

DO - 10.1016/j.jfs.2025.101450

M3 - Journal article

AN - SCOPUS:105014206556

SN - 1572-3089

VL - 80

JO - Journal of Financial Stability

JF - Journal of Financial Stability

M1 - 101450

ER -

Institutional distraction and illegal business practices: The role of career concerns and wealth incentives

Abstract

Keywords

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