Character as a risk factor: 20 years of research on executives, criminal records and corporate outcomes

2 days ago
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This article draws on a presentation by Professor Henrik Nilsson of the Stockholm School of Economics at "Who's at the Helm? Executive Integrity, Corporate Risk, and Transatlantic Perspectives", an event co-hosted by Look Closer and AmCham Sweden in Stockholm on 26 May 2026. It summarises a broader body of academic research; the individual studies are the work of their respective authors.

In a much-cited investigation, the Swedish business magazine Affärsvärlden, working with the National Council for Crime Prevention (Brå), reported that one in four of listed companies' most senior elected officials had a criminal record, and that the average director was only marginally more law-abiding than the average Swede. The headline drew attention, but it was not a novel claim. It sat on top of an academic literature that now spans roughly two decades, several countries and a number of independent research teams, all circling the same question: does an executive's personal record tell us anything useful about the company they run?

What makes the evidence persuasive is precisely that it does not come from a single group with a single dataset. Separate teams, working with different national registers and different methods, have arrived at consistent conclusions. In the Nordic countries, Professor Henrik Nilsson of the Stockholm School of Economics and Professor Juha-Pekka Kallunki of the University of Oulu have each led much of the work, often alongside the accounting researcher Eli Amir. In the United States, Professor Aiyesha Dey, now at Harvard Business School, has produced a parallel body of evidence with Robert Davidson and Abbie Smith. Other teams again, in Denmark and Finland, have extended it further. These are independent efforts, not a single research programme, which is part of why the pattern they describe is hard to dismiss.

How common is it?

More common than most governance frameworks assume. Drawing on a unique dataset of Swedish listed companies, Amir, Kallunki and Nilsson found that the share of individuals convicted or suspected of a crime rose with seniority and ownership: 12.4 percent of auditors, 25.7 percent of board members, 33.1 percent of CEOs and 43.6 percent of main owners holding at least 10 percent of equity. Separate Finnish research led by Kallunki found a comparable pattern, with around one in five executives of listed companies carrying at least one conviction. These are not marginal figures. They describe the people who set strategy, sign accounts and control capital.

The behavioural premise

The research rests on a straightforward argument from behavioural consistency: a record of legal infractions tends to reflect underlying traits such as a high tolerance for risk, overconfidence, weak self-control and a lower regard for rules. If those traits carry over from private life into the boardroom, they should surface in the decisions a company makes, from acquisitions to financial reporting to the handling of bad news. The studies below test that premise across very different settings, and the results line up.

Performance and financial reporting

In the Swedish data, Amir, Kallunki and Nilsson linked convicted or suspected directors and CEOs to measurably weaker firms. Such companies tended to be smaller and 1 to 3 percentage points less profitable, reported roughly 15 percent more volatile earnings, were 30 to 40 percent more likely to take goodwill write-offs following unsuccessful acquisitions, and were slower to recognise bad news in earnings, a marker of lower accounting quality.

The US evidence sharpens the picture on outright fraud. In a study in the Journal of Financial Economics, Davidson, Dey and Smith (2015) found that CEOs and CFOs with a prior legal record were far more likely to perpetrate fraud than those without (20.2 percent versus 4.6 percent). They also examined "unfrugal" executives, those with a taste for luxury. Frugality alone did not predict fraud by the CEO, but an unfrugal CEO tended to oversee a looser control environment, raising the odds that others inside the firm would offend. Corporate culture visibly drifted during such a tenure, with unfrugal CFOs appointed, higher equity incentives to misreport, and weaker board monitoring.

Bankruptcy and the wider workforce

One of the more ambitious studies looks beyond the C-suite. Using Danish nationwide register data linking criminal records to the entire workforce of private firms, Regenburg and Seitz (2021, Review of Accounting Studies) examined 15,697 firms, more than 100,000 firm-years and roughly 1.43 million individuals. A CEO's criminal record was associated with a 36 percent higher probability of bankruptcy, and rank-and-file employees mattered too, with a one standard deviation increase in workforce criminality raising bankruptcy risk by around 22 percent. Lenders appeared to sense this and partially priced it into the cost of debt.

Insider trading and the limits of governance

Records also predict who exploits privileged information. In a further study, Davidson, Dey and Smith (2020, Contemporary Accounting Research) found that "recordholder" executives earned significantly higher profits from insider purchases and sales than their peers at the same firms, with the effect growing in the severity of the infraction. Importantly, standard governance tools such as trading blackout policies constrained minor offenders but had little effect on serious ones, who were more likely to trade during blackout periods regardless. Governance, in other words, binds the compliant and lets the determined slip through.

Auditors are not exempt

The same logic reaches the gatekeepers. In their study of audit partners, Amir, Kallunki and Nilsson found that auditors with criminal convictions, concentrated among men in non-Big-Four firms, took on higher-risk audits and charged roughly 20 percent higher fees after controlling for other risk factors, and that firms with convicted major owners were more likely to appoint them. Their clients showed more aggressive financial reporting. Separate US research (Pittman and co-authors, 2021) found that such auditors produced lower audit quality.

Where the behaviour begins

The most recent contribution turns to origins. In "Family Matters," published in the Journal of Accounting Research (2026), Jenni Kallunki, Juha-Pekka Kallunki, Wayne Landsman, Emma-Riikka Myllymäki and Lasse Niemi used Finnish register data on around 76,000 executives and their parents. They found that CEOs and board members were about 150 percent more likely to commit financial misconduct if a parent had a history of it, an intergenerational link that strengthened with the severity of the parental offence and held even after excluding family firms. Growing up in a high-misconduct municipality, or living with a spouse who engaged in misconduct, raised the likelihood further. A meaningful part of executive wrongdoing, on this evidence, is learned early rather than driven by later financial pressure.

What two decades of evidence adds up to

Across countries, datasets and research teams, the literature converges on one conclusion: personal character is a firm-level risk factor in its own right. The legal records of CEOs, directors, auditors and employees help predict fraud, acquisition quality, bankruptcy risk and insider trading returns, and they do so over and above what accounting numbers and conventional governance variables reveal. The mechanism looks like risk-seeking and weak self-control rather than financial desperation. And, repeatedly, the studies find that standard governance tools discipline the compliant while serious offenders work around them.

That last point carries the clearest practical implication, and it is one the research returns to again and again: the emphasis needs to shift from monitoring after the fact toward selection beforehand. By the time a problem surfaces in the accounts or in a regulator's inbox, the cost is already incurred. The information that predicts it, an individual's record and background, is available earlier, at the point of appointment, acquisition or partnership, but only to those who actually look for it.

This is the gap that thorough integrity due diligence is built to close. Background investigation of key individuals before a transaction or appointment is not a formality; on the weight of this evidence, it is a material risk control, capturing exactly the personal signals that financial statements and governance checklists miss. Two decades of independent academic research now point in the same direction. The case for looking closer at the people, and not only the numbers, has rarely been stronger.