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