Partisanship, Information, and Punishment for Misconduct at Work

ABSTRACT

We examine whether firms apply partisan standards when responding to employee financial misconduct. Using detailed individual‐level data on financial advisers, we find that advisers who are in the political minority at their firm (political minority advisers) are no different from their colleagues at the same firm and time in the incidence and severity of misconduct, yet following misconduct, they are significantly more likely to depart—a pattern we term “partisan punishment standards.” This pattern is especially pronounced at firms with lower internal information quality (IIQ), proxied with (1) lower external reporting quality (for public firms only), (2) private firms (relative to public firms), and (3) not hiring an independent public accountant to create an internal control report (for both public and private firms). We also document “partisan reporting standards”: Firms are more likely to publicly disclose misconduct by political minority advisers while remaining relatively silent in other cases. Firms that exhibit partisan punishment practices subsequently experience slower growth.