Local corruption and financial regulators’ exit option: A utility approach

Abstract

This paper investigates the impact of local corruption on the career decisions of financial regulators, focusing on their choice to exit public service. We develop a novel utility-based model that demonstrates how corruption in local government reduces the utility of remaining in regulatory roles, thereby increasing the likelihood of regulators’ departure. Our empirical analysis, based on a comprehensive dataset of 1914 SEC financial regulators, robustly confirms this relationship. Our findings underscore the importance of institutional quality in retaining skilled regulators essential for effective oversight and public policy implementation