The Relationship between Financial Risk-Taking Behavior and Ethical Risk-Taking Behavior in the Financial Industry
Start Date
April 2020
End Date
April 2020
Major Field of Study
Psychology
Student Type
Undergraduate
Faculty Mentor(s)
Ian S. Madfes, PhD
Presentation Format
Poster Presentation
Abstract/Description
Risk is the cornerstone of the financial industry. Academics and policy makers have proposed that flawed compensation practices, poor corporate governance, and low capital requirements encourage a “risk culture”. Research shows that financial professionals have the highest risk propensity in the financial domain relative to any other major industry. A tendency to be risky in a specific domain can be linked to a tendency of being risky in another. For example, being motivated by the pursuit of extrinsic life goals, like monetary gain, is highly predictive of both ethical and financial risk-taking behaviors.
These findings suggest that risk and a financial profession go hand in hand; this study evaluated if individuals with investment-related behaviors also have the propensity to take ethical risks. It was hypothesized that there is a significant relationship between financial risk-taking and ethical risk-taking behaviors in the financial industry; this relationship will be stronger than any similar relationship found in the general public. It is also hypothesized that the levels of both financial and ethical risk-taking behaviors will be higher for finance professionals than the general public.
Domain-Specific Risk-Taking Scale was completed by 13 finance professionals and 25 non-professionals. Data analysis showed weak, non-significant positive relationships between ethical and financial risk-taking for both groups, with a slightly stronger relationship for the non-professionals. The mean score for ethical and financial risks was lower for the financial professionals. These results did not support any of the three hypotheses.
The Relationship between Financial Risk-Taking Behavior and Ethical Risk-Taking Behavior in the Financial Industry
Risk is the cornerstone of the financial industry. Academics and policy makers have proposed that flawed compensation practices, poor corporate governance, and low capital requirements encourage a “risk culture”. Research shows that financial professionals have the highest risk propensity in the financial domain relative to any other major industry. A tendency to be risky in a specific domain can be linked to a tendency of being risky in another. For example, being motivated by the pursuit of extrinsic life goals, like monetary gain, is highly predictive of both ethical and financial risk-taking behaviors.
These findings suggest that risk and a financial profession go hand in hand; this study evaluated if individuals with investment-related behaviors also have the propensity to take ethical risks. It was hypothesized that there is a significant relationship between financial risk-taking and ethical risk-taking behaviors in the financial industry; this relationship will be stronger than any similar relationship found in the general public. It is also hypothesized that the levels of both financial and ethical risk-taking behaviors will be higher for finance professionals than the general public.
Domain-Specific Risk-Taking Scale was completed by 13 finance professionals and 25 non-professionals. Data analysis showed weak, non-significant positive relationships between ethical and financial risk-taking for both groups, with a slightly stronger relationship for the non-professionals. The mean score for ethical and financial risks was lower for the financial professionals. These results did not support any of the three hypotheses.