Robert Davidson and Christo Pirinsky
We study the link between individual propensity to violate moral principles and demand for finance based on two data sets – the World Values Survey and a data set with the legal records of CEOs of U.S. publicly traded companies. We find that individuals who are more tolerant of moral principle violations are more likely to borrow. Corporate executives with legal records are also associated with larger mortgages (both in absolute terms and relative to the value of their home). The results are economically significant. Reverse causality and individual attitudes towards risk are unlikely explanations of our findings. We contend that non-compliance relaxes participation constraints in capital markets by lowering the psychological costs of entering and breaking a contract.