Inherent and acquired disorder and their effects on misconduct

Misconduct is often the result of disorder in the firm. Disorder exists when organizational routines, processes, or mechanisms fail to fulfill their intended purposes. Social disorganization theory argues that “places”, such as neighborhoods and firms, experience persistent problems due to a lack of formal and informal controls. In this paper, we examine two disorder-creating potential antecedents of financial misconduct: previous misconduct and merger and acquisition (M&A) integration. These two events each indicate a type of disorder in the firm (inherent or acquired), which paves the way for future misconduct. Our results indicate that inherent disorder and acquired disorder jointly lead to future misconduct. These results highlight that organizations with broken internal systems are more likely to experience future misconduct and that M&A activity amplifies this effect.