Interesting piece of research. It says one could actually figure corrupt politicians by looking at their investment portfolio. Corrupt politicians usually have more riskier portfolio (have a higher share of equity). I had earlier pointed to another such research on Mumbai politicians as well.
The risk taken in a politician’s private investment portfolio is a strong indicator of whether that person will cross legal or ethical lines in office. The riskier the portfolio, the more likely the lawmaker will be involved in at least one scandal, according to new research by Harvard Business School’s Dylan Minor, visiting assistant professor in the Strategy unit. But before you rise up tall in the saddle against politicians, consider another of Minor’s findings: The connection between risk taking and corruption is likely to apply just as well in many types of leadership roles—CEOs, say.
“If you are more of a risk taker, all things being equal, you are going to be more likely to engage in misconduct,” Minor says.
In Risk Preferences and Misconduct: Evidence from Politicians, Minor analyzes whether risk preference is a good predictor of misconduct, using members of Congress as his subjects. He delved into the politicians’ financial records, determining what percentage of their portfolios was allocated to riskier investments–in this case stocks—versus safer bonds, a standard measurement used by investment firms. He then matched the data against instances of wrongdoing covering a six-year period.
The more the portfolio balance tipped toward stocks, the greater the chance of trouble. Scandal-marred politicians on average held 64 percent stocks, versus 54 percent stocks for the scandal free. Split another way, politicians holding more than 50 percent stocks were almost twice as likely to be involved in a scandal compared to their more risk averse counterparts.
On the recent Presidential race. the future is not bright:
Re-entering the political sphere, Minor’s research begs the question of how this could apply to the current presidential race. The paper does not make claims in this regard, but Minor says the two-front running candidates have already been associated with financial risk-taking and scandal.
“Hillary obviously already has [been associated with] scandals, and I know Donald Trump has as well. So unfortunately they’re both predicted to be scandalous.”