Family background strongly linked to financial misconduct by corporate executives

According to the study, senior corporate executives are significantly more likely to commit financial crimes if their parents have previously been charged with and convicted of such offenses. The association is particularly strong when the parents’ financial crimes were serious and resulted in prison sentences.

The study, conducted at the Oulu Business School, examined financial crime convictions of chief executive officers and board members of Finnish limited liability companies that occurred while they were serving in these roles.

The data were drawn from Statistics Finland’s judicial statistics register and cover nearly 76,000 CEOs and board members who worked in more than 64,000 limited liability companies between 1995 and 2019.

According to the researchers, the results cannot be explained by factors such as shared family business backgrounds or the parents’ low socioeconomic status.

Spousal behavior also appears to influence executive conduct. Executives convicted of financial crimes are more likely than others to have a spouse who has also committed financial crimes. The likelihood of committing financial crimes increases with the length of the relationship.

The probability of financial misconduct is also higher among executives who, during their youth, lived in areas where financial crime was more prevalent than average.

The types of financial crimes committed by executives included accounting fraud, tax offenses, and other forms of economic crime. The research data include only cases in which charges were brought and convictions handed down by courts.

According to Professor Juha-Pekka Kallunki, the findings have significant societal implications, as individual financial crimes often have wide-ranging consequences. “Financial misconduct by a member of a company’s top management often leads to losses of jobs, tax revenues, and invested capital, affecting a large number of people,” he says.

The researchers emphasize that the study does not demonstrate a direct cause-and-effect relationship. However, the results strongly support the importance of learned behavior and social influences—particularly those originating in the childhood family environment—in shaping executive behavior.

The findings highlight the central role of learned behavior in financial misconduct, even at the highest levels of corporate leadership. “This observation underscores the importance of ‘unlearning’ such behavioral patterns in efforts to prevent financial crime,” Kallunki notes.

Financial crime is one form of criminal activity, yet it has been relatively under-researched. Corporate responsibility has only gained broader emphasis during the past decade, and it has been introduced as a distinct subject in business school curricula only in recent years.

This study is the first to examine intergenerational links in financial misconduct among corporate executives. It offers a new perspective on why some executives engage in financial wrongdoing and how family background and early-life environments continue to shape top-level corporate decision-making years later.

The results have been published in the prestigious Journal of Accounting Research:
Jenni Kallunki, Juha-Pekka Kallunki, Wayne Landsman, Emma-Riikka Myllymäki, Lasse Niemi: Family Matters: Exploring the Link Between Parental and Executive Financial Misconduct

DOI: https://doi.org/10.1111/1475-679X.70028

The study was also reported by the U.S. business magazine Forbes Financial Misconduct: Does The Apple Fall Far From The Tree?

Read more: One in five executives of Finnish publicly traded companies has a criminal conviction