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Conflict of Interest, Disclosure and Vertical Relationships: An Experimental Analysis

Author

Listed:
  • Paul Chen
  • Martin Richardson

Abstract

Vertical integration in providing financial products and advice is not uncommon. We conduct an experiment in which a financial advisor recommends to a client one of two potential assets to purchase and an asset purchase price. In one setting, the players’ incentives are aligned. In another, a conflict of interest exists with the advisor's remuneration favouring one particular asset. We find that conflict influences the advisor's asset recommendation away from the asset that would better serve the client. Disclosure of that conflict, however, influences neither the advisor's asset recommendation nor, more surprisingly, the client's likelihood of rejecting that recommendation.

Suggested Citation

  • Paul Chen & Martin Richardson, 2019. "Conflict of Interest, Disclosure and Vertical Relationships: An Experimental Analysis," Economic Papers, The Economic Society of Australia, vol. 38(3), pages 167-181, September.
    • Handle: RePEc:bla:econpa:v:38:y:2019:i:3:p:167-181
    DOI: 10.1111/1759-3441.12245
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    Cited by:

    1. Fabian Wagner, 2024. "Determinants of conventional and digital investment advisory decisions: a systematic literature review," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-32, December.

    More about this item

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation

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